27th Annual Report 2010-2011 · 27 th ANNUAL REPORT 2010-2011 vakils Hindustan Oil Exploration Company Limited Website: 27th Annual Report 2010-2011 Hindustan Oil Exploration Company

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27th Annual Report 2010-2011

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27th Annual General Meeting

Company Information 1

Board of Directors 2

Highlights of FY 2010-11 3

Operational Highlights At A Glance 4

Directors’ Report 6

Management Discussion and Analysis Report 12

Report on Corporate Governance 23

Accounts with Auditors’ Report 37

Consolidated Accounts with Auditors’ Report 67

Glossary 93

Date : September 28, 2011

Day : Wednesday

Time : 10:30 A.M.

Place : “Tropicana Hall” The Gateway Hotel Vadodara Akota Gardens, Akota Vadodara-390 020

Contents

‘Birth Centenary Year’ (1911-2011)

“The task of Oil Exploration is complex and the journey tortuous. Glorious is the vision of development, but those who are charged with its realisation need to be imbibed with that vision as they steer along their path in spite of many impediments. There are no signposts on the road. Those who do the steering will be able to traverse the difficult terrain if they maintain faith in their mission.”

Late Shri H.T. ParekhFounder Chairman

Disclaimer Note:

Certain sections of this Annual Report, in particular the Management Discussion and Analysis, and Operational Highlights may contain forward-looking statements concerning the financial condition and results of operations of HOEC. Forward-looking statements are statements of future expectations that are based on management’s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. No assurances can be given as to future results, levels of activity and achievements and actual results, levels of activity and achievements may differ materially from those expressed or implied by any forward-looking statements contained in this report. HOEC does not undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information.

Company Information

Registered Office

‘HOEC House’, Tandalja RoadVadodara – 390 020, Gujarat (India)E-mail: [email protected]: www.hoec.com

Chennai Office‘Lakshmi Chambers’192, St. Mary’s Road, Alwarpet Chennai – 600 018, Tamil Nadu (India)

Company Secretary & Chief Legal Counsel

Mr. Sanjay Tiwari Hindustan Oil Exploration Company Limited ‘Lakshmi Chambers’192, St. Mary’s Road, Alwarpet Chennai – 600 018, Tamil Nadu (India)Tel: +91-(044) 66229000, Extn.: 104 Fax: +91-(044) 66229011/12 E-mail: [email protected]

Auditors

Audit Partner

S.R. Batliboi & AssociatesChartered Accountants

Mr. Subramanian Suresh

Internal Auditors Protiviti India

Bankers

• Axis Bank• HDFC Bank• IDBI Bank• State Bank of India

Lenders

• Axis Bank• ENI Coordination Center S.A., Belgium• HDFC Bank • IDBI Bank• State Bank of India

Advocates & Solicitors Amarchand & Mangaldas & Suresh A. Shroff & Co..

Registrars & Share Transfer Agent

Link Intime India Pvt. LimitedB-102 & 103, Shangrila Complex, First Floor Opp. HDFC Bank, Near Radhakrishna Char Rasta Akota, Vadodara – 390 020, Gujarat (India)E-Mail: [email protected]

Credit Rating Agency ICRA

Board of Directors

Mr. Luigi Ciarrocchi, 50 years, holds a degree in Petroleum Engineering from the Politecnico of Turin and has pursued an international career, spanning 24 years in hydrocarbon E&P sector, in Europe, Africa and Middle East countries.

He has held important managerial positions in ENI, including District Manager in Italy, Managing Director of INAgip in Croatia and Managing Director of Eni Pakistan. He is currently Chairman of Burren Shakti Limited, Burren Energy plc., Eni China B.V., Eni South China Sea Limited, Sarl, Eni Australia B.V., Eni Australia Limited, Eni Bulungan B.V., Eni Muara Bakau and others.

Mr. Luigi Ciarrocchi Managing Director

Mr. Manish Maheshwari, 43 years, holds Bachelor (Hons.) degree in Chemical Engineering and Masters in Business Administration from Strathclyde University, U.K. and received Danida Fellowship. He has diversified business experience of

more than 23 years. Prior to his appointment as the Joint Managing Director of the Company, he held the office of the Chief Financial Officer of the Company.

Mr. Manish Maheshwari is also the Chairman of HOEC Bardahl India Limited, the wholly owned subsidiary of the Company.

Mr. Manish Maheshwari Joint Managing Director

Mr. Mukesh Butani, 47 years, is a lawyer and Chartered Accountant. He is a member of ICC, Paris Taxation Commission and served as Chairman of the Tax & Tariff Committee of the American Chamber of Commerce.

He is a member of OECD's Business restructuring advisory group. Mr. Mukesh Butani is the founder partner of BMR Legal, Advocates & Solicitors. He leads the tax practice with specialization in International Tax and Transfer Pricing matters. He was leader of the Oil and gas Industry practice at Andersen, a member of the core industry team at Ernst & Young and has deep experience in working with companies across the industry value chain from upstream companies to organizations engaged in mid-stream and downstream activities.

Mr. Mukesh Butani Non-Executive Independent Director

Mr. R. Vasudevan Non-Executive Independent Director/Chairman

Mr. R. Vasudevan, 74 years, holds a B.A. (Hons.) (Economics) degree from the University of Madras, a M.A. (Economic Statistics) degree from the University of Delhi and a M.P.A. (Development Economics) from Harvard University, Boston, U.S.A.

He has held various senior level positions in the ministries of the Government of India including the Prime Minister’s Office, Ministry of Steel and Ministry of Petroleum and Natural Gas. He retired as Secretary to the Government of India, Ministry of Power. He was a founder director of Small Industries Development Bank of India.

Mr. Sunil Behari Mathur, 67 years, is a Chartered Accountant. He has more than 40 years of experience in the fields of insurance and housing finance. He was the Chairman of Life Insurance Corporation of India. He is on the board of various companies. He has been

sponsored by United States Agency for International Development ("USAID") for a training program on housing finance at the Wharton Business School of the University of Pennsylvania. He also holds Trusteeships, Advisory/Administrative Roles on Government Bodies, Authorities and Corporations. He is the Ex-officio Secretary General of Life Insurance Council.

Mr. Sunil Behari MathurNon-Executive Independent Director

Mr. Deepak S. Parekh, 67 years, is a Fellow of the Institute of Chartered Accountants (England and Wales). Besides HDFC Group Companies, Mr. Parekh is the Non-Executive Chairman of the board of several leading companies across diverse sectors.

At the financial helm of India Inc., Mr. Parekh is an active member of various high-powered Economic Groups, Government appointed Advisory Committees and Task Forces which includes housing, financial services, capital markets and infrastructure sector reforms.

He is a recipient of Padma Bhushan award from the Government of India. He is also the first international recipient of the Institute of Chartered Accountants in England and Wales' Outstanding Achievement Award - 2010.

Mr. Deepak S. Parekh Non-Executive Director

Mr. Paolo Carmosino, 57 years, holds a degree in law from the University "La Sapienza" of Rome and pursued a career within the Eni Group spanning 33 years in finance and planning control areas. He is Eni's Senior Vice President for Finance, Chairman of Eni

Coordination Center and Banque Eni SA and he is also a Director of EniADFin (formerly Sofid SpA).

Mr. Paolo Carmosino Non-Executive Director

Mr. Sergio A. Laura, 53 years, has a degree in Geological Sciences from the University of Genoa. He joined Eni in 1984 and after gaining experience in various disciplines of geology for hydrocarbon exploration, he has held various senior managerial

positions while working with Eni Exploration & Production in several countries: Italy, UK, China, Egypt, Indonesia and India. Currently, he is the Managing Director of Eni India Limited and Director of Burren Shakti Limited and Burren Energy India Limited.

Mr. Sergio Adriano Laura Non-Executive Director

Mr. Marcello Simoncelli, 56 years, has a Liceo Scientifico Statale Cavour & Graduate degree in Geology cum Laude from Roma, Italy. He has more than 30 years of technical, operational and managerial experience in E&P industry. Presently he is the

Regional Liaison Manager for India and Pakistan at Eni. In past, he has held several assignments within Eni like Chief Geophysicist and later Exploration Manager for Agip China BV-Beijing, Exploration Manager-Domestic Exploration for Eni E&P Milan and most recently as Director of Exploration with Eni Oil do Brasil.

Mr. Marcello Simoncelli Non-Executive Director

Highlights of FY 2010-11

* AverageProductionisonworkinginterestbasis.** OperatingCashFlowisbeforeWorkingCapitalChangesandTaxes.Figureshavebeenroundedoff.

FINANCIAL HIGHLIGHTSØØ AverageØProduction*Ø7,405ØboepdØ(FYØ2009-10:Ø2,900Øboepd)

ØØ RevenueØofØRs.Ø3,373ØmillionØ(FYØ2009-10:ØRs.Ø1,589Ømillion)

ØØ ProfitØAfterØTaxØofØRs.Ø802ØmillionØ(FYØ2009-10:ØRs.Ø416Ømillion)

ØØ OperatingØCashØFlow**ØofØRs.Ø2,442ØmillionØ(FYØ2009-10:ØRs.Ø1,172Ømillion)

Operational Highlights At A Glance

Oil

Gas

Production/Development & Exploration

Appraisal/Exploration only

O = HOEC as Operator

D = Development Phase

E = Exploration Phase

PI= Participating Interest

HOEC’s oil and gas assets consist of operated & non-operated acreages in Cauvery, Cambay, Assam-Arakan and Rajasthan basins in India

Notes: Production figures are gross for respective fields for Financial Year 2010-2011. Location of Contract Area is indicative and not to scale.

CB-ON-7 HOEC PI: 35% (O)

Ø Production: approx. 170 boepd

CB-OS/1 HOEC PI: 57.11% (E) /38.07% (D)

Ø Alternate development scheme being pursued by ONGC, the Operator, in view of CRZ limitation

Ø rPOD entailing alternate development scheme to be submitted by Operator to the Government and Management Committee

RJ-ONN-2005/1 HOEC PI: 25% (O)

Ø Proposal for assignment of 25% PI held by JPL under consideration by Government

Ø Contract awarded for 3D Seismic Acquisition; Mobilisation in progress

AAP-ON-94/1 HOEC PI: 40.32% (O)

Dirok Gas Discovery: Appraisal Results

Ø Dirok-2 Appraisal Well drilled successfully, initial Gas flowrate 6.5 mmscfd through a 32/64” choke

Ø Land acquisition and drilling preparation in progress for Dirok-4 Appraisal Well

North Balol HOEC PI: 25% (O)

Ø Production: approx. 1.1 mmscfd

RJ-ONN-2005/2 HOEC PI: 25%

Ø Tender issued for 3D Seismic Acquisition;

Ø Bids evaluation in progress by OIL, the Operator

Rajasthan

Andhra

Pradesh

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il N

adu

Assam

Gujarat

Legend:

GN-ON-90/3 HOEC PI: 75% (O)

Ø Arbitration award received in favour of HOEC

Asjol HOEC PI: 50% (O)

Ø Production: approx. 17 bopd

PY-3 HOEC PI: 21%

Ø Production: approx. 3,400 boepd

PY-1 HOEC PI: 100% (O)

Ø Production: approx. 6,545 boepd; offtake affected due to non-dispatch of IPP (end user) on a continuous basis

Ø G & G and Reservoir Model updated for PY-1 Field, a complex heterogeneous basement reservoir

Ø Workover in two existing wells and drilling of additional infill well(s) planned to increase the gas production

Ø GAIL (India) (Buyer) to install additional pipeline connecting PY-1 Gas Terminal to grid for uninterrupted evacuation of gas

HINDUSTAN OIL EXPLORATION COMPANY LIMITED

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Directors’ Report

To the Members of HINDUSTAN OIL EXPLORATION COMPANY LIMITED

Your Directors have the pleasure in placing before you the 27th Annual Report including the Audited Statement of Accounts for the year ended March 31, 2011.

1. FINANCIAL HIGHLIGHTSINR million

Particulars Standalone Consolidated

2010-2011 2009-2010 2010-2011 2009-2010

Turnover 3,285 1,450 3,444 1,607

Other Income 88 139 92 144

Revenue 3,373 1,589 3,536 1,751

Profit before Depreciation/Depletion/ Amortization/Write Offs/Taxation

2,402 1,123 2,430 1,160

Less : Depreciation/ Depletion/ Amortisation

1,223 472 1,223 473

Less : Provisions & Write Offs 0 0 0 0

Profit Before Tax 1,179 651 1,207 687

Less : Provision for Tax 377 235 391 247

Profit After Tax 802 416 816 440

Profit/(Loss) brought forward 1,870 1,454 1,930 1,490

Profit available for Appropriation 2,672 1,870 2,746 1,930

Balance carried to the Balance Sheet 2,596 1,870 2,670 1,930

Figures have been rounded off.

During the year, your Company produced 2.7 mmboe of crude oil and gas (previous year 1.0 mmboe), the increase being on account of full year production from PY-1 and PY-3 Fields. This has resulted in a turnover of INR 3,285 million, an increase of 2.26 times over the previous year.

The Profit-Before-Tax was INR 1,179 million, an increase of 81% over the previous year.

Provision for tax was higher because of higher taxable income in the current year.

During the year under review, your Company had a Profit-After-Tax of INR 802 million, an increase of 93% over the previous year.

2. DIVIDEND

During the year, the Directors declared an interim dividend of 5%. In view of foreseeable capital expenditure in existing producing fields and development of discoveries in Assam and Cambay, the

Directors recommend to the members that the interim dividend of 5% may be treated as the final dividend for the year 2010-2011.

3. CAPITAL EXPENDITUREDuring the year under review, the Company invested capital expenditure of INR 150 million towards development activities, including PY-1 Field and INR 334 million towards exploration activities covering primarily appraisal programme in Block AAP-ON-94/1.

4. DIRECTORS’ COMMISSIONWhile the Compensation and Remuneration Committee has recommended an aggregate commission of INR 3.0 million to be distributed amongst the Non Executive Independent Directors, however the Independent Directors have chosen not to accept this commission as a gesture to support the Company in its immediate endeavors.

5. OPERATIONAL HIGHLIGHTSOperations review has been provided in the Management Discussion and Analysis Report, which forms part of this Annual Report.

6. COMPLETION OF DRILLING OF APPRAISAL WELL IN ASSAM

Your Company, as Operator of AAP-ON-94/1 consortium, has successfully drilled and tested first appraisal well in Block AAP-ON-94/1 during the year. The drill stem test has resulted in initial flow rate of approximately 6.50 million standard cubic feet per day (mmscfd) of natural gas and 140 barrels per day of condensate through a 32/64” choke. The Company has a 40.323% participating interest during exploration/appraisal period in the said Block.

7. GN-ON-90/3 BLOCK (PRANHITA GODAVARI) ARBITRATION AWARD

Arbitral Tribunal, in the matter of arbitration between Company, as one of the claimants, and ONGC and Government, as respondents, has given its award in favour of the


7

Company (claimant). The Award has upheld the Company’s claims and ordered respondents to pay to the claimants the entire amount of encashed Bank Guarantee along with interest and cost of arbitration.

8. TECHNICAL SUPPORT FROM ENI (PROMOTERS OF THE COMPANY)

Pursuant to the Petroleum Service Agreement (PSA) with Eni India Limited (Eni), your Company has received during the year under review, support from Eni in activities like updation of PY-1 Geological & Reservoir Models, seismic and structural studies in Assam, and continuous improvement in HSE standards besides deputation of technical personnel at HOEC.

9. MANAGEMENT DISCUSSION AND ANALYSIS REPORT

In terms of Clause 49 of the Listing Agreement with the Stock Exchanges, Management Discussion and Analysis Report is appended to and forms part of this Annual Report.

10. CORPORATE GOVERNANCEPursuant to Clause 49 of the Listing Agreement, the report on Corporate Governance, along with a Certificate thereon, from a Company Secretary in Practice, is appended to and forms part of this Annual Report.

The Board of Directors have implemented certain provisions of the ‘Corporate Governance Voluntary Guidelines 2009’, issued by the Ministry of Corporate Affairs in December 2009 in order to pursue best Corporate Governance practices.

11. COST ACCOUNTING RECORDSThe Company has maintained cost records as required by Cost Accounting Records (Petroleum Industry) Rules, 2002 notified on October 8, 2002.

The Ministry of Corporate Affairs vide its Order dated May 02, 2011 has notified that a company engaged in petroleum operations shall get its cost accounting records in respect of each financial year commencing on or after April 01, 2011, audited by a cost auditor who shall be, either a cost accountant or a firm of cost accountants, holding valid certificate of practice under the provisions of Cost and Works Accountants Act, 1959. In compliance with the aforesaid requirement, the Company has appointed a qualified practicing cost accountant for auditing its cost accounting records for FY 2011-12.

12. HOEC BARDAHL INDIA LIMITED (HBIL), SUBSIDIARY OF HOEC

During the year under review, net income of HBIL, HOEC’s wholly owned subsidiary, was INR 170 million being marginally higher as against previous year of INR 169 million. The net profit was INR 13.4 million during the year as against INR 24 million in the previous year. The decrease in the net profit was mainly on account of higher inputs costs and competitive pricing policy to maintain the market share of HBIL products.

The Consolidated Financial Statements presented by the Company include financial information of HBIL prepared in compliance with applicable accounting standards. The Ministry of Corporate Affairs, Government of India vide its Circular No. 5/12/2007-CL-III dated February 8, 2011 has granted general exemption under Section 212(8) of the Companies Act, 1956, from attaching the balance sheet, profit and loss account and other documents of the subsidiary companies to the balance sheet of the company, provided certain conditions are fulfilled. Accordingly, annual accounts of HBIL and the related detailed information will be made available to the shareholders of the Company seeking such information at any time during the office hours. The annual accounts of HBIL are available for inspection by any shareholder at the Company’s Registered Office and at the Registered Office of HBIL, at Vadodara. Details of the financial information required under the Circular is covered in Note No. 1 under Schedule 17- “Notes to the Consolidated Accounts”.

13. CONSOLIDATED FINANCIAL STATEMENTSPursuant to Accounting Standard AS-21 and the Listing Agreement entered into with the Stock Exchanges, Consolidated Financial Statements for the financial year 2010-2011 are appended to and form part of this Annual Report.

14. CREDIT RATINGCompany continues to have LA+ rating assigned by ICRA to the term loan facilities availed by the Company. LA+ is the adequate-credit quality rating assigned by ICRA and the rated instrument carries average credit risk.

15. AUDITORS’ REPORT AND DIRECTORS’ EXPLANATION

In the previous Annual Report for FY 2009-10, the Company had stated that it had issued certain job orders to Eni for specific services, subsequent to Board approval. As per the Board’s directive,


8

the Company had accrued the charges of INR 160,438,827 as on March 31, 2010 for these services based on Eni’s invoices. Pending receipt of detailed documentation supporting the charges for such services including independent certification by the auditors of Eni regarding the basis of such charges, the Auditors of the Company had then drawn a reference in their Audit Report of the amounts accounted for as development expenditure in the Financial Year ended March 31, 2010.

During the year under review, Company has received substantial documentation including the certification from the auditors of Eni to support basis of the charges towards services received in FY 2009-10 which satisfies the conditions as stipulated by the Audit Committee and Board and thus the Auditors’ observation for FY 2009-10 has been complied with.

Further, during the year under review, Company has issued job orders to Eni for specific services subsequent to obtaining Board approval. As per the Board’s directive, the Company has accrued the charges of INR 186,039,614 for these services as of March 31, 2011. Based on the principles established by PSA and expected to be consistently followed by Eni, a reference to such matter has not been made by the Auditors in their Audit Report for the Financial Year ended March 31, 2011.

16. UNINCORPORATED JOINT VENTURESThe financial statements of the Company reflect its share of assets, liabilities, income and expenditure of the Joint Venture operations which are accounted on the basis of available information on a line-by-line basis with similar items in the Company’s Accounts to the extent of the participating interest of the Company as per various “Production Sharing Contracts”. The financial statements of the Unincorporated Joint Ventures are prepared by the respective Operators in accordance with the requirements prescribed by the respective Production Sharing Contracts of the Unincorporated Joint Ventures.

17. FIXED DEPOSITYour Company has not accepted any fixed deposits and, as such, no amount of principal or interest was outstanding as at the balance sheet date.

18. DIRECTORSIn accordance with the Articles of Association of the Company and provisions of the Companies Act, 1956, Mr. Sunil Behari Mathur, Mr. Mukesh Butani, Mr. Luigi Ciarrocchi

and Mr. Manish Maheshwari will retire by rotation and being eligible, have offered themselves for re-appointment as Directors.

The Board of Directors recommends aforesaid re-appointments at the ensuing Annual General Meeting.

The term of appointment of Mr. Luigi Ciarrocchi as Managing Director will expire at the conclusion of the ensuing Annual General Meeting. He has declined to be re-appointed as Managing Director due to his pre-occupation and other business commitments. Board herein places on record its appreciation for valuable services made by Mr. Luigi Ciarrocchi as the Managing Director.

The term of appointment of Mr. Manish Maheshwari will expire at the conclusion of the ensuing Annual General Meeting. He has given his consent to be re-appointed as Managing Director. Board, at its meeting held on May 09, 2011, has recommended the appointment of Mr. Manish Maheshwari as Managing Director of the Company.

Further, Board at its meeting held on August 05, 2011 has recommended Mr. Sergio A. Laura to be appointed as Managing Director of the Company at the ensuing Annual General Meeting. Mr. Laura has given his consent for such appointment.

19. EMPLOYEES STOCK OPTION SCHEMEDuring the year FY 2010-11, an aggregate of 17,680 stock options were granted to Non Executive Independent Directors. While performance bonus was awarded to Executive Director and employees, no stock options were granted to them during the FY 2010-11.

The ESOS disclosure as at March 31, 2011 is as below:

PARTICULARS HOEC EMPLOYEE

STOCK OPTION SCHEME-2005

(a) Stock Options outstanding as at April 01, 2010

: 34,441

(b) Option Granted during the year : 17,680(c) Pricing Formula : Nil(d) Options Vested during the year : Nil(e) Options Exercised during the year : Nil(f) The total number of shares arising

upon/after exercise of Option: 17,680

(g) Options Lapsed during the year : 3,011(h) Variation in terms of Options : Not Applicable(i) Money realized by exercise of Options : Nil(j) Total number of Options in force as of

March 31, 2011: 49,110


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PARTICULARS HOEC EMPLOYEE

STOCK OPTION SCHEME-2005

(k) Details of Options granted during the FY 2010-11:

Non-Executive Directors:Mr. R. Vasudevan : 6,800Mr. Mukesh Butani : 5,440Mr. Sunil Behari Mathur : 5,440Managing Director/Joint Managing Director

: Nil

Senior Management Personnel : NilAny other employee who received a grant in any one year of Options amounting to 5% or more of Options granted during that year

: Nil

Identified employees who were granted Options, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding equity share) of the Company at the time of grant.

: None

(l) Diluted Earnings Per Share (EPS) before exceptional items pursuant to issue of shares on exercise of Options calculated in accordance with Accounting Standard (AS) 20 ‘Earning Per Share’ refer note-1

: INR 6.15

(m) Weighted- average exercise price NilWeighted- average fair value of options separately for options, whose exercise price either equal or exceed or is less than the market price of the stock on the grant date

INR 183.85

Note: 1. Under the ESOS Scheme approved by the Shareholders, the exercise of

options has no dilution impact on the EPS.

20. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO

Particulars required under the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988:

A. Conservation of Energy: (a) energy conservation measures taken:

During the year, Company continued to focus on minimizing the energy consumption and the measures taken are summarised below:

1. Due consideration has been given to energy consumption while procuring services and equipments.

2. As a responsible Corporate Citizen and in adherence to our climate change strategy, Company is continuously taking effective steps to conserve energy and to reduce methane and other Green Houses Gases (GHG) emissions, wherever feasible.

3. Minimized environmental impact from its activities: Many measures have been implemented in PY-1 Project for prevention and control of pollution and improvement of environmental performance. Company continues with its initiatives on energy and resource conservation at its PY-1 facilities.

4. The Company regularly monitored air emission sources and the ambient air quality and maintained emission levels within regulatory standards in 2010-11.

5. Solar panels at offshore PY-1 Platform were installed to provide un-interrupted power supply.

6. Except the emergency lights, all lights and electrical gadgets are turned off after working hours and on holidays at office premises of the Company to help in minimising the energy consumption.

(b) additional investments and proposals, if any, being implemented for reduction of consumption of energy: NIL

(c) impact of the measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods:

Reduction in emission of Green House Gases (GHGs) as a result of minimal use of air conditioning system and reduced consumption of power and fuel.

(d) total energy consumption and energy consumption per unit of production as per Form A of the annexure to the Rules in respect of industries specified in the schedule thereto:

The Company is neither part of the industries nor engaged in any activity specified in the Schedule to the Rules.

A miniscule fraction of gas production is being utilized for internal consumption at PY-1 Site.

B. Research and Development (R&D): Nil

C. Technology absorption, adaptation and innovation:

Various technology absorption, adaptation and innovation initiatives were taken including inter alia Managed Pressure Drilling for gas wells in PY-1, multi-well-single-pad approach


10

reducing the environmental imprint in Assam, rotary steerable drilling and high-end-logging-while-drilling technology, customized compact well head equipment, and usage of environmentally friendly bio degradable base oil in synthetic oil-based-mud-system for drilling applications which is not only environmentally friendly but also re-used in multiple wells thus avoiding disposal of thousands of barrels of drilling fluids. The use of modern horizontal well technology, well control technology, with multiple mechanical barriers/reservoir isolation were utilized during well construction.

Young engineers and geoscientists were deputed for assignments relating to HOEC projects at Eni S.p.A, Milan with a view to gain advance technical expertise in geoscientific disciplines.

Benefit derived as a result of the above efforts:

All these initiatives are helping the Company in improving the overall efficiency, lowering the land impact and addressing environmental concerns, cost effectiveness and project economics.

Technology imported during last five years: NIL

D. Foreign exchange earnings and outgo:

(a) activities relating to exports; initiatives taken to increase exports; development of new export markets for products and services; and export plans: Company is engaged in production of crude oil and natural gas; the existing Government policies and Production Sharing Contracts (PSCs) to which Company is a Party, do not allow Company to export its production till India achieves self sufficiency in domestic production of hydrocarbons.

(b) total foreign exchange used and earned: INR million

Particulars 2010-2011 2009-2010A. Foreign Exchange Earnings

(See Note 1)0.62 10.69

B. Foreign Exchange Used • CashCallPaymenttoJoint

Ventures444.65 5,748.47

• FarminConsideration 0 134.87• ExpenditureinForeign

Currency (See Note 2) 266.54 192.21• RepaymentofForeign

Currency Loan (See Note 3) 453.27 243.24Total Foreign Exchange Used (B) 1,164.46 6,318.79

Net Foreign Exchange Used (B-A) 1,163.84 6,308.10

Notes:

1. The above includes Interest received in foreign currency netted off against Borrowing Cost in accordance with the Accounting Standard 16. Current Year amount is NIL (Previous Year: INR 7.82 million)

2. The above includes Interest paid in foreign currency capitalized as Borrowing Cost in accordance with the Accounting Standard 16. Current Year amount is NIL (Previous Year: INR 28.08 million)

3. The above excludes drawdown of foreign currency loan. Current Year amount is NIL (Previous Year: INR 6,165 million).

21. HUMAN CAPITAL & MANAGEMENT

The Company continues to pursue best practices to develop it’s human capital. The Company continuously evaluates it’s HR polices and practices to attract and develop talent. Company has made its web-based Performance Appraisal System (PAS) fully functional which has now completed its one full cycle of implementation with focus on organizational objectives aligned with KRAs of key personnel, objective performance measurement, assessment of potential and identification of training needs for individual growth.

22. PARTICULARS OF EMPLOYEES

The particulars of employees required to be furnished pursuant to Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 are appended hereto and forms part of this Report.

23. AUDITORS

The Auditors, S. R. Batliboi & Associates (SRB), will retire at the forthcoming Annual General Meeting. Based on the recommendation of the Audit Committee, the Board has, at its meeting held on May 09, 2011, recommended the appointment of SRB as the Statutory Auditors of the Company to hold office from the conclusion of the ensuing Annual General Meeting until the conclusion of the next Annual General Meeting.


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ANNEXURE TO THE DIRECTORS’ REPORT

Statement of particulars of employees pursuant to the provisions of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 and forming part of the Directors’ Report for the year ended March 31, 2011.

Name Design- ation

Remuner-ation

received (Refer

Note 1)(INR)

Stock options granted

during the year (No. of shares)

Nature of employment

Nature of duties of the employee

Quali-fications of the employee

Experi-ence

of the employee (in years)

Date of commen-

cement of employ-

ment

Age The last designation and employment held by such employee before joining the company

The number

of equity shares

held by the

employee

The percentage

of equity shares

held by the

employee

Period of Employment during the Financial year

Mr. K. N. Prabhakar (Refer note 4)

Head - Exploration Ventures

12,430,581 (Refer

note 4)

Nil Permanent Exploration activities

M.Sc (Geology)

35 14-Jun-07 57 Deputy General Manager – Oil and Natural Gas Corporation Limited

Nil Nil 1-Apr-10 31-Dec-10

Mr. Manish Maheshwari Joint Managing Director

22,782,684 Nil Permanent Overall management of the Company Operations

B.E. (Hons), MBA (UK)

23 1-Oct-03 43 Senior Investment Manager – Danish International Investment Fund

9,590 Negligible 1-Apr-10 31-Mar-11

Notes:1 Gross remuneration as above includes salary, taxable allowances, Company’s Contribution to Provident Fund and Superannuation Fund, Gratuity paid

(but excludes Company’s contribution to Gratuity Fund), reimbursement of medical expenses, personal accident & health insurance premium, leave travel assistance and monetary value of perquisites calculated in accordance with the provisions of the Income Tax Act, 1961 and the Rules there-under. No Stock Options were granted during the year to these employees.

2 All the above named persons are eligible for all employee benefits eligible to the same class of employee. 3 None of the above named person is a relative of any Director of the Company. 4 Mr. K. N. Prabhakar resigned from the Company on December 31, 2010; remuneration includes one time payment of INR 8,510,396 made in December 2010.

24. DIRECTORS’ RESPONSIBILITY STATEMENT

In accordance with the provisions of Section 217(2AA) of the Companies Act, 1956, with respect to Directors’ Responsibility Statement, it is hereby confirmed:

(i) that in the preparation of the annual accounts for the financial year, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any;

(ii) that the directors have selected such accounting policies and applied them consistently unless otherwise stated and made judgments and estimates that were reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit or loss account of the Company for the year ended on that date;

(iii) that the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

(iv) that the directors have prepared the accounts on a ‘going concern’ basis.

25. ACKNOWLEDGEMENTS

Your Directors place on record their gratitude for the support and co-operation received from Government agencies namely, the Ministry of Petroleum & Natural Gas, Directorate General of Hydrocarbons, Government of Gujarat, Government of Tamil Nadu, Government of Assam, Government of Andhra Pradesh, Government of Rajasthan and the authorities working under them. Your Directors express their gratitude to the Company’s stakeholders, shareholders, business partners, and bankers for their understanding and support and look forward to their continued support in future. Your Directors value the professionalism, dedication and commitment of the HOEC team, which has contributed to the growth and performance of the Company.

For and on behalf of the Board

R. VasudevanDate: August 05, 2011 Chairman


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Management Discussion and Analysis Report

INDUSTRY STRUCTURE, DEVELOPMENT AND OPPORTUNITIESExploration and production of oil and gas is critical for India’s energy security and economic growth. During the financial year 2010-2011, the world experienced a wide spectrum of business environments. Energy markets continued to recover from the impact of the global economic recession. During 2010-2011, exploration and production sector experienced significant volatility, a norm now intrinsic to this industry. In 2011, the spectre of environmental, health, safety and operational issues rose to a prominence with the unfortunate incident in the Gulf of Mexico.

Oil price for the year 2010-2011 averaged USD 87 per barrel, about 24% above 2009-10’s average of USD 70 per barrel. Prices traded in a relatively narrow band of USD 70-80 per barrel for first two quarters of the year before rising in the third and fourth quarter. Prices exceeded USD 115 per barrel in March 2011, the highest level since October 2008.

While the world economy continued to recover in 2010-2011, we expect slower global growth in 2012, led by emerging economies, with developed countries lagging behind because of the need to deal with their internal imbalances. Energy demand, and in particular oil demand, follows this overall economic pattern, recovering strongly in 2010-2011 but facing more challenging conditions as we move into 2011-2012. Concerns about the volatility of commodity and financial markets, combined with renewed focus on strategy and climate change have led to an increased focus on a global basis on the appropriate role for markets, government oversight and other policy measures relating to the supply and consumption of energy. Meeting growing energy demand in a safe and environmentally responsible way is a key challenge and keeping pace with growth in energy demand will require unprecedented levels of investment and pursuit of alternate economic energy sources.

India continues to import nearly 70% of its Crude Oil requirements with its oil import bill being close to USD 86 billion in 2010-2011. Further given India’s targeted GDP growth, India’s

need for primary energy is likely to more than double by 2020. In a high demand growth scenario coupled with the fact that India remains vastly unexplored territory with only 20% of its sedimentary basins been moderately explored and developed, the Oil and Gas sector in India presents significant opportunity to the industry.

HOEC operates in the Oil & Gas Exploration and Production (E & P) Industry, with its current portfolio of assets located in India. Energy security is perhaps the most strategic challenge for our country, central to its economic development and rapid growth. HOEC’s business is therefore inexorably linked with the national imperative. HOEC is dedicated to contribute in meeting the energy needs of India and in this endeavor, the Company, in association with its consortium partners, works in close collaboration with the Government of India through Production Sharing Contracts (PSCs) to explore, develop and produce hydrocarbons in a safe and responsible manner.

COMPANY’S BUSINESS AND STRATEGYThe Company’s core business is to explore, develop and produce hydrocarbons. The Company seeks out opportunities which have the potential to continue to generate shareholder value by transforming our business through the application of proven technology and management focus. HOEC’s strategy is to grow Company’s core business over both medium and the long term with improving profitability through enhanced operational efficiency, capital efficiency and cost efficiency. We focus our attention on decisions that benefit decades, not just near term results. We want to achieve our strategic objectives and goals through exploration-led growth. We fundamentally believe everything is about teamwork and people and we want to be recognised as a low cost yet high performance driven E & P company.

HOEC believes that good environmental, social, health and safety performance is an integral part of our business success. Our commitment to these principles is demonstrated by the fact that we have had no lost-time accidents or environmental incidents


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during the year under review. We conduct our business with respect and care for our employees, contractors, communities, and the environments in which we operate. Our vision is zero harm to people and the environment while creating value for our shareholders as well as for India, including the regions and communities within which we operate. We have a commitment to being a good corporate citizen of India, striving to emphasize and utilize national talent, services, and equipment.

HOEC conducts its business with high regard for safety in operations and in compliance with the law. We strive to run our business within the discipline of a transparent financial framework. We intend to focus on the application of technology and developing relationships based on a commitment to long-term partnerships and mutual advantage.

Our priority is to ensure safe, reliable and regulatory compliant operations. Our strategy is to invest in long-term value growth by continuing to build a portfolio of development and producing properties. Our strategy is enabled by:• Operate and hold material working interests for control;• Maintain a balanced asset portfolio with effective exploration

inventory;• Continuously reduce operating risk;• Strong relationships built on mutual advantage;• Deep knowledge of the basins in which we operate, and

apply technology;• Operate in low cost business environment and focus on

operational control and cost efficiency; and• Build capability along the value chain across Exploration,

Development, Production and Enhanced Recovery Phases of E & P Projects.

Our intention is to generate and sustain business momentum and growth through a rigorous process of continuous improvement in existing projects and an ongoing focus on safety, people and performance. We expect to organically replace reserves and grow long-term production by developing opportunities available through our existing assets. To recapitulate, the key elements of our Company’s strategy continue as follows:• To increase our production by development of discoveries in

existing assets;• To increase our reserve base by exploring and establishing

upside potential in our existing assets;• To constrain our exposure to exploration risk within prudent

limits;

• Greater use of advance technology in operations;

• Improvement of production indicators and efficient control over lifting costs;

• To seek new investment opportunities wherein HOEC can leverage its position as a cost efficient operator; and

• To monetise assets with a view to value realization or risk sharing.

In executing this strategy, Company intends to preserve a robust capital structure targeting an optimal mix of borrowings and shareholders’ equity. The results achieved by the Company against the objectives set for the FY 2010-2011 are summarized below:

• We have successfully updated G&G and Reservoir Model of PY-1 Field using an integrated approach across geophysical, petrophysical, and reservoir engineering and identified drilling location of new infill well(s);

• Our Company has successfully drilled Appraisal Well Dirok-2 to delineate the “Dirok” Discovery;

• Reservoir studies for PY-3 Field have been completed and accordingly Geological and Reservoir Model has been updated;

• Facilitated the Operator to develop alternate development approach for CB-OS-1 Gulf “A” Field by addressing the environmental issues relating to management of Coastal Regulation Zone (CRZ) in Gulf of Khambhat; and

• Contract for acquisition of 3D seismic data has been awarded to establish exploration objectives for HOEC operated acreage in Rajasthan.

Building up on the outcome of the objectives set for last year, we have defined the following objectives for the FY 2011-2012:

• Based on the results of the G&G and Reservoir Modeling of PY-1 Field, drilling of additional infill well(s) has been planned to increase the gas production;

• Drilling of Appraisal Well Dirok-4 and prepare a Commercial Discovery Report (CDR) to monetise the Discovery;

• Continue to facilitate development initiative of Gulf “A” Discovery in Block CB-OS-1 operated by ONGC and assist during the development phase to address the reservoir risk, if any, and expedite monetization of the reservoir;

• Assist HEPI, the Operator, in execution of Phase III of Field Development Plan in PY-3 Field;

• Acquire, process and interpret 3D seismic data in RJ-ONN-2005/1 acreage for defining exploration objectives; and


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• Continue to seek new opportunities which provide strategic fit to our existing portfolio/competencies while providing basis of reserve replacement. We shall be reviewing our portfolio for organic growth as also evaluating new growth opportunities commensurating with our risk profile and providing competitive economic returns.

Financial and Operational DisciplineOil and gas exploration is a capital intensive industry. Our financial strategy is to ensure we have a strong balance sheet and the flexibility to support the Company’s significant exploration-led growth strategy.

OPERATIONAL IMPERATIVES: TOP FIVE DIMENSIONS FY 2010-11

Safety First

Never put person or asset in an unsafe situation.

Environment Friendly

Never knowingly harm the environment.

Regulation Compliant

To be compliant with applicable laws all the time.

Lowest Possible Cost (USD/bbl)

To focus on expeditious exploitation at the lowest possible cost.

Investment Prudence

To exploit the most valuable opportunities (EMV/NPV) on priority in our portfolio in any given year.

In pursuit of its business strategy, the Company undertakes a comprehensive risk-reward evaluation and allocates capital post assessment of risked returns expected from projects. Projects within the Company compete against each other for capital. All projects are screened on a rigorous, consistent basis for technical quality, materiality, and commercial viability. We use our geoscience capabilities and understanding of the hydrocarbon potential to identify, evaluate, and prioritize the highest quality resource opportunities.

As one of the low cost operators in the industry, we scrutinize every cost in the organization on the premise that costs drive economics, especially in resource plays. Cost is an element which can be controlled in the E & P business without sacrificing either value or HSE dimension by way of meticulous planning and preparation ahead of operations. Our operations-oriented background will prove beneficial in this context. Our ability to

allocate capital with focus on cost allows us to achieve an acceptable return on invested capital in various price environments.

Operational discipline, technical excellence and cost control are intrinsic to the Company’s processes. The financial strategy of the Company remains focused on maintaining the Balance Sheet strength to allow us to invest in our exploration and development opportunities. All projects are screened on a rigorous, consistent basis for technical quality and commercial viability. With commencement of production from PY-1, an unconventional reservoir, the Company’s cash flow generation has nearly doubled this year.

OPERATIONS REVIEW

OverviewThe Company’s activities relate to exploration and production (based on exploration success) of hydrocarbons (crude oil and natural gas), which are natural resources. HOEC assets are geographically spread across India with a portfolio of exploration, development and production projects. Start of production from PY-1 Field, a complex granatic basement reservoir, demonstrates that one of our core strengths is the ability to turn resources into reserves and then into production, revenue and cash flows.

Product-wise PerformanceHOEC delivered a strong operating performance during the year, establishing a new production record. The Company’s aggregate production during the FY 2010-2011 was 2,702,772 barrels of oil equivalent (boe) (crude oil: 368,936 bbls; gas: 366,955,275 scm) as against 1,058,607 barrels of oil equivalent (boe) (crude oil: 181,127 bbls; gas: 137,968,552 scm) during the previous year. This increase of 155% was primarily contributed by full year production from PY-1 and PY-3 Fields.


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ReservesAs of March 31, 2011, the internal estimates of Proved and Probable (P+P) reserves on working interest basis for the Company were 51.4 mmboe.

CAUVERY BASIN

PY-1 Gas FieldThe Company commenced commercial production of Natural Gas and Condensate from PY-1 Field last year. The gas from PY-1 Field is supplied to GAIL (India) Limited. Pursuant to the Production Sharing Contract for PY-1 Field, Chennai Petroleum Corporation Limited (CPCL), is designated as the Government nominee for purchasing the Condensate. The Field produced 363,828,486 scm of Natural Gas and 75,064 barrel of Condensate during the year. Reservoir studies to update the G&G model utilising the dynamic data and production history match has been completed for better definition and characterisation of this unconventional basement reservoir with participation of ENI team.

Forward PlanBased on the results of the reservoir studies, the Company has evaluated possibility of workover operations in two of its existing wells and pursuing with the authorities to drill additional infill well(s) from the existing platform “Sun”.

PY-3 FieldThe average gross production from PY-3 Field increased to 3,393 bopd in FY 2010-2011 from 1,436 bopd in the previous year due to full year availability vis-à-vis only 162 days in the previous year, the shutdown being due to repair of carrier arm of the SBM for the loading hose. Production on working-interest basis to HOEC averaged 713 bopd in FY 2010-2011, as against 301 bopd in FY 2009-2010.

Forward PlanFollowing in-depth G&G studies and updation of Reservoir Model of the PY-3 Field, the Operator envisages drilling new producer wells along with provision for gas lift facilities to improve recovery of crude oil, however the drilling schedule is yet to be finalised. The Operator has also evaluated alternate options relating to Production Facilities and recommended to continue with existing Floating Production Unit, a Floating Storage Vessel

and mooring system, all upgraded, to ensure compliance with safety standard and regulatory norms.

CAMBAY BASIN

Block CB-ON-7The gross production from CB-ON-7 Block averaged 250 boepd as compared to 262 boepd in the previous year. Production on working interest basis to HOEC averaged 85 boepd during the year, a nominal decrease of 5% attributable to natural decline.

Forward PlanThe Joint Venture Partners have requested the Government for retention of certain block area, identified as “R2” Area, in accordance with the Government guidelines for further exploration. The said proposal is under active consideration by the Government and the DGH has circulated a draft PSC for this ring-fenced “R2” area. In the event your Company decides to execute the PSC, we shall acquire 3D seismic data and drill two additional wells in the said area.

North Balol Gas FieldNorth Balol Field produced 11,309,574 scm of natural gas during the year with an average production rate of 30,985 scmd, down 21% over the previous year primarily due to closure of one of the producing wells.

Asjol FieldThe field produced at an average rate of 20 bopd during the year with an aggregate production of 7,360 bbls.

Block CB-OS/1ONGC, the Operator, is carrying out course correction in the development scheme for Gulf “A” Discovery taking management of CRZ aspects into consideration.

ASSAM-ARAKAN BASIN

Block AAP-ON-94/1The Company, as Operator, has drilled Dirok-2, the second appraisal well in this logistically difficult terrain and carried out well testing to establish definition of Dirok Discovery. The Joint Venture has finalized the location of another appraisal well, namely Dirok-4, for delineation of existing discovery and assessing the potential consistent with the PSC provisions.


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Forward PlanSubsequent to drilling of Dirok-4, the Company shall prepare a Commercial Discovery Report (CDR) taking into consideration all geological, reservoir parameters and concept selection for development to establish the commercial viability of the Dirok Discovery.

RAJASTHAN BASIN

Block RJ-ONN-2005/1The Company has awarded the contract for the acquisition of 3D seismic data to establish exploration objectives. The acquisition of the data is expected to commence in August 2011, upon grant of clearance by the Indian Army.

Block RJ-ONN-2005/2The Operator, Oil India Limited, has issued the tender for award of the contract for the acquisition of 3D seismic data. Technical evaluation of the bids is being carried out by the Operator and award of the contract is expected in September 2011 with the acquisition of the data scheduled to commence in November 2011.

RISKS, THREATS, UNCERTAINTIES, CONCERNS AND OPPORTUNITIESHOEC’s business, financial standing and reputation may be impacted by various risks and uncertainties not all of which are within its control. The Company identifies and monitors the key risks and uncertainties affecting the Company and runs the business in a way that minimises their impact where possible.

ENTERPRISE LEVEL: RISK RADAR 2-3 YEARS HORIZON

The Company’s level of risk and its management approach is discussed and reviewed by the Board, Audit Committee and senior management. The principal risks and uncertainties facing the Company and the actions taken to mitigate these risks are as follows:

STRATEGIC RISKDESCRIPTION OF RISK MITIGATIONBusiness Model Our Board Members along with

Management team periodically reviews the Company’s business model and effect necessary adjustments if economic circumstances so demand.

Portfolio Mix The Company maintains a diverse portfolio of oil and gas assets across a range of sedimentary basins and at different project life cycles in order to minimise exposure to geographical, political and commodity market risk.

OPERATIONAL RISKDESCRIPTION OF RISK MITIGATIONHealth, Safety and Environment

Oil and gas operations carry a potentially high level of attendant risk, and the impact of an accident can be significant in terms of human, environmental and financial cost. HOEC carries out HAZOP, HAZID, SIMOPs and maintains risk register and Emergency Response Plan covering risks specific to various operations. The Company has devised a comprehensive policy framework as well as health and safety management and reporting systems. These are regularly monitored and reviewed by the Board. The Company also works closely with the Central and State Governmental authorities on this dimension. The Company undertakes operations as per international environmental standards of the oil industry. Environmental Impact Assessments are prepared and approvals from authorities are secured before any project is executed.

Exploration Risk Exploration is inherently a risky business, with statistically only a relatively small proportion of exploration wells resulting in commercial discovery. It is not possible to insure against the risk of exploration failure. HOEC’s policy is to contain this exposure within prudent limits. The Company has experienced management and technical team with a track record of finding hydrocarbon discoveries, which has resulted in a diversified portfolio of exploration, development and production assets. Systematic geo scientific work flow is undertaken to address geological risk and maximise opportunities.


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DESCRIPTION OF RISK MITIGATIONTalent Attrition Remuneration packages are reviewed

regularly to ensure key executives and senior management are properly remunerated. Long-term incentive programme has been established.

Cost Inflation impacting both Goods and Services

The Company pursues structured planning processes which allow sufficient time for procurement of services and tracking the critical path activities. Under the terms of the PSCs, operating expenditure and capital costs are recoverable through cost recovery mechanism, and so the effect of cost increase is cushioned to certain degree, subject to approval of expenditure by the Management Committees under the PSCs.

Community Relationship

Continuous dialogue and engagement exists between the Company and its stakeholders which is central to harmonious operations. Local personnel are employed wherever possible and Company help in developing skill sets of such personnel.

FINANCIAL RISKDESCRIPTION OF RISK MITIGATION

Commodity Price Volatility

HOEC is exposed to volatility in the oil price since the Company does not undertake any oil price hedge. The impact of a falling oil price is however partly mitigated via the production sharing formula in the PSCs, whereby our share of gross production increases in a falling oil price environment due to cost recovery mechanism. We believe that our shareholders as a body prefer to retain exposure to the oil price, so our policy is not to hedge against a fall in oil prices. The PY-1 Gas price being fixed under term contract entered by the Company provides the Company with certainty in terms of cash inflows from sale of gas.

Foreign Exchange Exposure and Interest Rate Risk

Company enjoys a natural hedge to a certain extent as its receivable and significant expenditure are denominated in United States Dollar (USD). For bullet loan repayment, Company has negotiated Schedule to ISDA Master Agreement with banks and would enter into Principal Only Swap (POS) at an appropriate window of opportunity taking into consideration cost of hedge vis-à-vis exposure. Presently, the Company has a weighted average interest cost of 1.68% per annum. Company would enter into Interest Rate Swap (IRS) if it believes that the interest rate movements going forward would have significant effect on the financial performance of the Company.

DESCRIPTION OF RISK MITIGATION

Liquidity Risk A formal budgeting and forecasting process is in place and cash forecasts identifying liquidity requirements of the Company are reviewed regularly by the Audit Committee and Board and financing plans are approved based on end utilization of proceeds and cost of capital.

COMPLIANCE, ETHICAL AND GOVERNANCE RISKDESCRIPTION OF RISK MITIGATION

Legal, Regulatory and Litigation

The Company’s activities are subject to various laws and regulations. Regulatory changes could affect the short, medium and long-term value of the Company. Risks are mitigated by employing skilled and experienced staff to conduct proactive assessment and ensuring compliance. The Company is party to various ongoing litigations/arbitrations (also refer Note No. 17 under Schedule 15 “Notes to the Accounts”), which if decided against the Company, may have an adverse impact on the operations and/or financial position of the Company.

Ethical Conduct The Company recognises the importance and maintains transparent and responsible relationships with a wide variety of stakeholders including the Government.

Corporate Governance The Company recognises the importance of maintaining strong corporate governance procedures and processes. The Company has governance framework in place. The Board reviews compliance with the applicable regulatory guidelines and best practices. The Company, benchmarking with international best practices, has adopted policies on Anti-corruption Compliance, Global Compliance, Management System, Procurement Management etc. as per international practices.

OpportunitiesThe Company continues to seek new opportunities which provide strategic fit to our existing portfolio/competencies while providing basis of reserve replacement.

Insurance CoverageOur business is subject to the operating risks normally associated with exploration, production, processing and transportation of oil and gas. As protection against financial loss resulting from some


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of the operating hazards, we maintain insurance coverage for all operated and non-operated assets including physical damage, control of well, seepage and pollution, business interruption, employer’s liability, third party liability, goods in transit, terrorism coverage and comprehensive general liability insurance. The coverage is subject to customary deductibles, waiting periods and recovery limits. We maintain insurance at levels that we believe are appropriate and consistent with industry practice and we regularly review our potential risks of loss and the cost and availability of insurance and revise our insurance program accordingly. The Company also procures director’s liability insurance covering pollution defense cost, legal representation cover and crisis management cover.

FINANCIAL REVIEW

RevenueTurnover for the FY 2010-11 was up by 127% to INR 3,285 million. The increase reflects full year contribution in FY 2010-11 from PY-1 Field and PY-3 Field as PY-1 Field commenced production in November 2009 and PY-3 Field was shut in for seven months for maintenance during previous year. Other Income was lower by 35% to INR 88 million on account of lower foreign exchange gain in this year. The average sale price of crude oil was USD 87/bbl (2009-2010: USD 67/bbl) and net gas price was USD 3.63 per mmbtu.

Production on working interest basis during the year was 2,702,772 boe, 155% higher than the previous year. The net entitlement volume was 7,190 boepd, 150% higher than the previous year. Sales volume at 2,693,529 boe was 160% higher than in previous year.

Operating ProfitCost of sales increased from INR 857 million to INR 2,009 million in FY 2010-11, 134% higher than the previous year, the increase is driven by the fact that PY-1 and PY-3 field were on production for the complete year in this financial year, unlike previous year. Depletion charge for the year was INR 1,218 million as against INR 466 million in the previous year, the increase primarily being on account of depletion charges relating to PY-1 and PY-3 Field in line with the Company’s accounting policy.

Interest and finance charges were INR 124 million as compared to INR 80 million in the previous year due to charging of the

full year financial/interest cost to Profit and Loss Account post commercial production. The Operating Profit was INR 1,303 million during FY 2010-11 as compared to INR 731 million in the previous year.

Net ProfitThe total tax charge after MAT Credit entitlement was INR 377 million for the year compared to total tax charge of INR 235 million in previous year. The higher tax charge in the year under review was due to higher income from Operations. The Company has accounted the MAT credit considering financial performance projections from ongoing projects indicates that sufficient future taxable income will be available against which MAT Credit can be realized. Profit After Tax increased to INR 802 million (FY 2009-2010: INR 416 million).

Cash Flow and Capital ExpenditureCash from Operation before working capital and taxes was INR 2,442 million as compared to INR 1,172 million of the previous year. This also reflects full year contribution from PY-1 and PY-3 Field. During the year under review, the Company made a capital expenditure of approximately INR 498 million (FY 2009-2010: INR 5,620 million). Of this, the exploration expenditure was approx INR 334 million and development expenditure of approximately INR 150 million.

FINANCIAL POSITION

LiquidityAt the year end, HOEC had cash and cash equivalent of approx INR 1,236 million.

Cash surplus to immediate requirements is placed in debt oriented Liquid Funds and Bank Deposits as approved by the Board. HOEC manages its short term liquidity in order to generate returns by investing its surplus funds while ensuring safety of capital.

During the year, the term debt reduced by INR 630 million to INR 5,894 million consequent to repayments as per the loan agreements.

ICRA has assigned an LA+ (pronounced L A plus) rating to its term loan. LA+ is the adequate-credit quality rating assigned by ICRA and the rated instrument carries average credit risk. ICRA has not revised this rating during the year.


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INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACYThe Company maintains a comprehensive system of internal control. This comprises the holistic set of management systems, organizational structures, processes, standards and behaviours that are employed to conduct our business and deliver returns for shareholders. The Company has a proper and adequate system of internal control commensurate with the size and nature of business. These systems provide a reasonable assurance in respect of providing financial and operational information, complying with applicable statutes, safeguarding of assets of the company and ensuring compliance with corporate policies.

Company has an elaborate internal control system part of which is embedded within each asset’s operations to monitor and manage risks associated with each asset’s operations and performance. The Company also conducts periodic evaluations, mainly through its Internal Audit, in order to determine the adequacy of its Internal Controls System.

The Company has appointed Protiviti, an independent global firm with expertise in internal audit and assurance, that among other things, ensures the adequacy of the procedures of recognizing and managing risks applied by Management, the effectiveness of the Internal Controls System and the quality and reliability of the information given to the Management with regard to the System of Internal Controls. The adequacy of the Internal Controls System is monitored on a systematic basis by the Audit Committee, through reports submitted to it every quarter by the Internal Auditors. Reports by the Management and the Internal Auditors include assessments of the major risks and the effectiveness of the Internal Controls System in addressing them. Systemic weakness identified, if any, are incorporated in the reports, including the impact they had or could have had, as well as the actions of Management to correct them. No significant control failures were reported during the year.

A detailed asset level business plan is prepared to meet the agreed annual work programme and budget. This sets out detailed objectives and KPIs for each asset and supporting functional departments, and is consolidated into the Company’s annual business plan. After an iterative process, the business plan and budget along with cash forecasts identifying liquidity and financing requirements of the Company are presented to the Audit Committee and the Board for approval. Funding plans are

approved by the Audit Committee and the Board based on end utilization of proceeds and cost of capital.

As part of the Company’s internal control process, any transactions with related parties are approved by the Audit Committee and Board of Directors, and appropriately disclosed in the financial statements.

The Company’s Information Technology (IT) Department is responsible for developing the IT strategy to support the overall strategy and provide the required tools and solutions to all employees. A key part of its responsibilities is the operation and support of IT systems and applications through the drafting and updating of manuals, and the efficient management of internal and external resources. The Company has developed a sufficient framework to monitor and control its IT systems, which is defined by a set of internal controls, policies and procedures. Access rights have been set in several information systems for all the employees, according to their position and role.

The Company has internal controls regarding fixed assets, inventories, cash and bank checks, etc, such as physical security, inventory counts and reconciliations of physically counted quantities with the recorded ones. Further the Company has schedule of quarterly inventory counts to confirm inventory levels as per accounting records. The Company also has a chart of authorities, which depicts assigned authorities to various Company executives, in order to conduct certain transactions or actions (e.g. payments, receipts, contracts, etc).

The Company has an established policy towards maintaining standards of health, safety and environmental norms while maintaining operational integrity. The HSE Management System ensures that relevant safety and environmental standards are adhered to on an ongoing basis in all the areas of operations. A series of reports are generated on a regular basis to monitor compliance with standards on gas emissions, liquid effluents, solid waste, noise and incident statistics monitoring. These reports are then collated and used to highlight and propose an action plan for any area of non-compliance or where there is potential for improvement. Emergency Response Plan (ERP) is also in place for operational areas.

The Company has implemented Maximo ERP system to further strengthen its procurement-to-payment function. Maximo ERP System covers most of the Company’s operations with a defined


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online authorization protocol and provides a proper budgetary control system to monitor capital related as well as other costs, against approved budget on an ongoing basis.

WHISTLE-BLOWER POLICYThe Company has a whistle-blower policy and systems in place. A copy of the policy has been made available on the website of the Company. All employees, contractual persons, consultants, vendors and customers of HOEC can raise concerns about possible wrong doing by contacting the Ombudsperson in a confidential manner.

OUTLOOKBased on the forward plan in various assets and more specifically continued development of PY-1 Gas Field and establishing Commercial Discover Report (CDR) for Dirok Discovery, our outlook remains positive.

Oil and Gas MarketsLooking ahead, the long-term outlook is one of growing demand for energy, particularly in Asia, and of challenges for the industry in meeting this demand. Rising incomes and expanding urban populations are expected to drive demand, while the evolution towards a lower-carbon economy will require technology, innovation and investment. In the long term, Global energy demand is projected to increase by around 40% between 2010 and 2030. Fossil fuels are expected still to be satisfying as much as 80% of the world’s energy needs in 2030. The outlook for oil price in 2011 is expected to remain robust, mainly supported by a steady tightening of physical supply and due to global geo-political events. The price of Brent oil is forecast to be in a corridor of USD 90-110/bbl through 2011-2012.

Gas prices in India have been evolving over the years from an administered price regime of sub USD 2/mmbtu to USD 4.2/ mmbtu and eventually would become linked to energy equivalent pricing mechanism. With the Government expected to finalise gas allocation policy and establishment of a regulatory framework to facilitate and promote gas transmission infrastructure spanning the country, the gap in producer gas prices can be expected to progressively close.

Price InflationThe global demand on finite oil service resources are showing a sign of reversal and rig day rates, marine spread cost and costs of the attendant services expect to register a modest increase.

MATERIAL DEVELOPMENT IN HUMAN RESOURCE FRONTOur ability to create sustainable shareholder value is linked to our ability to recruit, motivate and retain staff with high degree of professionality. HOEC strives to ensure that relationships amongst our employees are cohesive, professionally, effective and performance enriching. HOEC values all employees for their contribution to our business. It is vital that we develop and deploy people with the skills, capability and determination required to meet our objectives. There remains, in our industry, a continuing shortage of professionals, driven by changing demographics. Nonetheless, we have thus far been successful in building this capacity and we are committed to building and deploying capability with a strong safety and risk management culture to foster professional pride in engineering, health, safety, security, the environment and operations. Opportunities for advancement are equal and not influenced by considerations other than performance and aptitude. Employees are provided with the opportunity to develop their potential and, where appropriate, to further their careers within the Company. HOEC’s success has been attributable in part to assembling the right team of people. Employees are motivated to develop within a flexible framework and are encouraged to provide feedback on their expectations.

We conduct 360-degree performance appraisals annually during which business objectives are established for the coming year. The size of the corporate organisation facilitates everyday, direct interaction and multi-disciplinary dialogue amongst personnel. This is enhanced further by informal offsite meetings which provide a forum for corporate updates and feedback. Your Company has over the years evolved a favourable work environment that creates and promotes culture of performance for teams to maximize their contribution. We also seek to improve the working environment by ensuring fairness and consistency of remuneration practices, as well as policies and procedures. As you are aware of, the Company has a long-term incentive plan (LTIP), duly approved by the shareholders, to provide incentives by way of cash and employee stock options, to act as a retention tool. Under the LTIP scheme, the employees are beneficiaries of performance bonus for the financial year 2010-2011.

HOEC’s talent base, as on March 31, 2011, stands at 58 (previous year: 62) with the average employee age being 37 years.


21

HEALTH, SAFETY, ENVIRONMENT & SOCIAL RESPONSIBILITY

OUR GOALWe are committed to making a positive contribution to the protection of the environment in areas in which we operate and to minimising any adverse effects of our operations. We strive to contribute positively to global sustainability through our operations, the development of our fields, our adoption of new technologies and the conduct of our relationships with all of our stakeholders. We aim to promote sharing of economic benefits created by our activities through the conduct of community relationships.

HOEC continued with sound health and safety record in FY 2010-2011 with no lost time incidents or fatalities. There were no environmental incidents and Environmental Impact Assessments were conducted in line with regulatory requirements. Consistent with the Company’s HSE Management System, site specific HSE Procedures have been put in place for each of the operating sites. Special skills training on Job Safety Awareness ( JSA) and Risk Assessment and HSE awareness campaigns have been conducted and best practices have been felicitated by HSE Awards Program.

HOEC has developed Emergency Response Plan (ERP) for production operations, drilling campaigns and construction activities to ensure timely response in times of emergency. ERP integrates knowledge from such diverse areas as small group decision making, environmental scanning, risk assessment, emergency communication, evaluation methods and reputation management. HOEC continually reviews its ERP to ensure that the Company’s processes match its needs and requirements.

During the last FY 2010-11, there were no fatalities, no lost time incidents (LTIs) and no environmental incidents. The key performance indicators (KPIs) related to HSE tracked by the Company for PY-1 Project since onset of commercial production are as below:

KPI’s statistics 2010-2011 2009-2010

Fatalities Accident Rate (FAR) 0 0

No. of LTI incidents 0 1

Days since last LTI 640 275

Oil Spill Incidents 0 0

2010-2011 Results

Industry Statistics OGP Report dated May, 2011 (updated June 01, 2011)

Fatal Accident Rate 0 2.76

LTI Frequency 0 0.42

LTI Severity 0 43.90

The Company, as part of its Corporate Social Responsibility (CSR) measure, has participated in development of rural infrastructure, cultural interpretation and community centre in its area of operations and has earmarked an amount of INR 8.4 million during this year towards CSR.

CRITICAL ACCOUNTING POLICIES AND ESTIMATESThe preparation of the financial statements requires the Company’s management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. When alternatives exist among various accounting methods, the choice of accounting method can have a significant impact on reported amounts. The following is a discussion of the accounting policies, estimates and judgment which management believes are most significant in the application of generally accepted accounting principles used in the preparation of the financial statements.

Oil and Gas PropertiesWe account for crude oil and natural gas properties under the Successful Efforts Method (SEM) of accounting. Under the SEM, costs to acquire mineral interests in crude oil and natural gas properties, to survey and acquire seismic, to drill and equip exploratory wells that find commercial quantities of proved reserves, and to drill and equip development wells are capitalized. Proved property acquisition costs are amortized by the unit-of production method on a field-by-field basis based on total proved developed crude oil and natural gas reserves as approved by the Management Committees of the respective Unincorporated Joint Ventures. Costs associated with survey, seismic acquisition and drilling exploratory wells that find proved reserves and drilling development wells are also amortized by the unit-of-production method on a field-by-field basis. These costs, along with support equipment and facilities, are amortized based on proved developed crude oil and natural gas reserves.

Besides being the recommended method under the Guidance Note issued by the Institute of Chartered Accountants of India, we believe that the SEM is the most appropriate method to use in accounting for our crude oil and natural gas properties because it provides a better representation of results of operations for a company of our size, especially during periods of active exploration.


22

Notes:

* For pre NELP Blocks, Royalty borne by Licensee

** Cost Recovery Limit defined in PSC; biddable term

*** Profit Oil Sharing is based on Investment Multiple biddable term. Investment Multiple computation is as below:

Investment Multiple (IM) = Cumulative Net Cash Income of Contractor ÷ Cumulative Investment

wherein:

Net Cash Income of Contractor = Cost Petroleum + Contractors’ Profit Petroleum – Production Costs – Notional Income Tax

Investment = Exploration Costs + Development Costs

Annexure to the Management Discussion and Analysis Report

Note: In preceding sections of this Annual Report, in particular the Directors’ Report and the Management Discussion and Analysis: (a) Previous year figures have been regrouped to conform to the current year presentation; and (b) Figures have been rounded off.

Site Restoration LiabilityOur site restoration liability consist of estimated costs of dismantling and abandoning producing well sites and facilities, site reclamation and similar activities associated with our oil and gas properties. The recognition of Site Restoration Liability requires that management make estimates, assumptions and judgments regarding such factors as estimated probabilities, amounts and timing of obligation. The corresponding amount is added to the

cost of the producing property and is expensed in proportion to the production for the year and the remaining estimated proved reserves of hydrocarbons based on latest technical assessment available with the Company. Any change in the value of the estimated liability is dealt with prospectively and reflected as an adjustment to the provision and the corresponding producing property. Site Restoration Liability aggregated Rs. 794.4 million as at March 31, 2011.


23

Report on Corporate Governance

1. Company’s philosophy on Code of CoRpoRate GoveRnanCe

The objectives of the Company’s Corporate Governance principles are to maintain highest degree of integrity, transparency, accountability, ethical behavior and long term sustainability in its business conduct and to be a good corporate citizen by ensuring investors protection, better compliance with statutory laws and regulations and by adopting best industry practices.

Company continues to focus on best Corporate Governance Practices prevailing in India. During the year, Company has adopted certain policies, guidelines, regulations and manuals in order to strengthen and achieve the objectives of Corporate Governance.

Company has complied with mandatory provisions of the Corporate Governance laid down by the Securities Exchange Board of India (SEBI) and which have been incorporated as Clause 49 of the Listing Agreement.

The Company inter-alia is in compliance with the non-mandatory requirements relating to the Remuneration Committee and Whistle Blower Policy.

Additionally, the Company has voluntarily adopted and implemented certain non-mandatory guidelines issued by the Ministry of Corporate Affairs in December 2009 relating to appointment of Directors, training, risk management, rotation of Auditors and/or its Partners.

2. BoaRd of diReCtoRs

(i) Composition and Category of Directors

As on March 31, 2011, the Company has nine Directors out of which seven Directors are Non-Executives Directors

and remaining two Directors are Executive Directors. The Chairman of the Board is a Non-Executive Independent Director. Three Directors are Non-Executive Independent Directors. Therefore the composition of the Board is in conformity with Clause 49 of the Listing Agreement entered into with the Stock Exchanges.

(ii) Function of the Board

Board is the highest decision making body subject to the powers and matters reserved to Members that may be exercised in their meeting.

Board accords its approval to all the key decisions of the Company. For day to day routine operations, the Board has delegated authority to Managing Director and Joint Managing Director. All matters of strategic or material nature are placed before the Board with background, proposal, situational and option analysis, notes and relevant documents to enable Board to take informed decisions.

(iii) Separation of Board’s supervisory role from Executive Management

The Company, in line with the best Corporate Governance practice, has separated the Board’s supervisory role from that of the executive management. The Chairman of the Company is a Non-Executive Independent Director.

(iv) Role of Independent Directors

The Independent Directors have vast and diversified professional and operational experience in the areas of general management, finance, insurance, international taxation and public administration & policy.

This pool of diverse experience enriches and adds value to discussions and decisions arrived by the Board.


24

Name of Directors Category No. of attendance at the Board

meeting

Whether last AGM attended

Memberships on Board of other

public Companies

Board Committee Chairmanship/

Membership of Board Committees of other

public Companiesrefer note 1

No. of shares & % held in

the Company

Mr. R. Vasudevan (DIN 00025334)

Non-Executive, Independent Director (Chairman)

6 of 6 Yes 4 Membership – 4 Nil

Mr. Deepak S. Parekh (DIN 00009078)

Non-Executive,Non-Independent Director

0 of 6 No 11 refer note 2 Chairmanship – 5 Membership – 2

Nil

Mr. Sunil Behari Mathur (DIN 00013239)

Non-Executive, Independent Director

4 of 6 Yes 11refer note 3 Chairmanship – 4 Membership – 4

Nil

Mr. Mukesh Butani (DIN 01452839)

Non-Executive, Independent Director

6 of 6 Yes 1 Membership – 1 Nil

Mr. Paolo Carmosino(DIN 02688754)

Non-Executive Director 1 of 6 No Nil refer note 4 Nil Nil

Mr. Sergio Adriano Laura (DIN 02670514)

Non-Executive Director 6 of 6 Yes Nil refer note 4 Nil Nil

Mr. Marcello Simoncelli (appointed w.e.f. Sept. 30, 2010)(DIN 03316543)

Non-Executive Director 2 of 3 Yes Nil refer note 4 Nil Nil

Mr. Santo Laganà (up to Sept. 30, 2010)(DIN 02356963)

Non-Executive Director 2 of 3 No Nil refer note 4 Nil Nil

Mr. Luigi Ciarrocchi(DIN 02357053)

Managing Director 0 of 6 No Nil refer note 4 Nil Nil

Mr. Manish Maheshwari refer note 5 (DIN 01791004)

Joint Managing Director 6 of 6 Yes 1 Nil 9,590 refer note 6

(% Negligible)

note 1 Represents Chairmanships / Memberships of Audit Committee and Shareholders / Investors Grievance Committee across all public limited companies, whether listed on the stock exchange(s) or not.

note 2 Mr. Deepak S. Parekh is an alternate director in four companies as well as a director on the Board of Airport Authority of India and foreign companies. The same is not included in the above details of membership on Board of other public Companies etc.

note 3 Excludes directorships/trusteeships and advisory role on the Board of various private limited companies, trusts and the Government bodies/authorities/corporations.

note 4 Excludes directorships on the Board of foreign companies registered outside India.

note 5 Mr. Manish Maheshwari is also the Chairman of HOEC Bardahl India Limited, wholly owned subsidiary of the Company.

note 6 The number of shares mentioned above represents the stock options exercised during the year as per the terms of ESOS scheme of the Company

(v) The names and categories of the Directors on Board, their attendance and other directorships etc.

The names and categories of the Directors on Board, their attendance record, number of directorships, committee positions

and shareholding in the Company as on March 31, 2011 are noted below:

(vi) Board Meetings

The Board is required to have four regular scheduled meetings per financial year. During the year under review, six (6) Board meetings were held and the gap between any two meetings did not exceed four months. The maximum and the minimum time gaps between two Board meetings were 98 days and 25 days respectively.

The dates on which the Board meetings were held during the Financial Year 2010-11 are April 30, 2010, May 29, 2010, August 12, 2010, September 30, 2010, October 25, 2010 and January 31, 2011.

(vii) Directors retiring during the year and appointments/re-appointments of Directors

Mr. Mukesh Butani, Mr. Sunil Behari Mathur, Mr. Luigi Ciarrocchi and Mr. Manish Maheshwari, Directors will retire at the ensuing Annual General Meeting of the Company. Being eligible, they have offered themselves for re-appointment.

The term of Mr. Luigi Ciarrocchi as Managing Director will expire at the conclusion of 27th Annual General Meeting. Mr. Luigi Ciarrocchi has declined to be re-appointed as Managing Director of the Company due to his pre occupation and other business commitments.


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(ix) Code of Conduct for prevention of Insider Trading

Pursuant to the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, as amended from time to time, the Company has laid down and adopted a Code of Conduct for Prevention of Insider Trading based and modeled on said Regulations. The said Code incorporates the amendments made in the aforementioned Insider Trading Regulations from time to time. The Company inter alia observes a closed period for trading in securities of the Company for Directors/ Officers and Designated Employees of the Company for the period of at-least seven days prior to the consideration of quarterly/yearly results.

The trading window is also closed in anticipation of price sensitive information/announcements/events. The said closure extends upto at least 24 hours after the disclosure of the said results/price sensitive information/announcements/events to the Stock Exchanges.

Information provided to the Board:

The Board of the Company is presented with information under the following heads, whenever applicable and materially significant.These are submitted either as part of the agenda papers in advance of the Board Meetings or are tabled in the course of the Board Meetings. This inter alia includes:

1. Annual operating plans of business, capital budget and any updates/revisions duly reviewed and recommended by the Audit Committee.

2. Quarterly results of the Company along with various reports duly reviewed and recommended by the Audit Committee.

3. Minutes of the Audit Committee, Shareholders/Investors Grievance Committee and Compensation & Remuneration Committee of the Board.

4. Information on recruitment and remuneration of senior officers just below the Board level, including appointment or removal of the senior officers and the Company Secretary.

5. Materially important litigations, show cause, demand, prosecution and penalty notices.

6. Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems etc.

The term of Mr. Manish Maheshwari will expire at the conclusion of 27th Annual General Meeting. Being eligible, Mr. Manish Maheshwari has given his consent to be appointed as the Managing Director. Board has recommended appointment of Mr. Manish Maheshwari as Managing Director of the Company at the ensuing Annual General Meeting.

Further, Board has recommended Mr. Sergio A. Laura to be appointed as Managing Director of the Company at ensuing Annual General Meeting.

The brief profile and expertise of Mr. Mukesh Butani, Mr. Sunil Behari Mathur, Mr. Manish Maheshwari, Mr. Luigi Ciarrocchi, and Mr. Sergio Adriano Laura are given in the Notice of the 27th Annual General Meeting.

The Company did not have any pecuniary relationship with the Non-Executive Directors during the year under review, except for the payment of sitting fees and grant of stock options to the Non-Executive Independent Directors.

The Board periodically reviews compliance of laws applicable to the Company. Based on compliance certificates given by the functional heads, the Managing Director/Joint Managing Director and the Company Secretary jointly give certificate of compliance to the Board for its review and noting. This certificate also contains reasons and action plan to remedy non-compliance, if any.

(viii) Code of Conducts for the Directors and Senior Executives

In compliance with Clause 49 of the Listing Agreement, Company has laid down and implemented the Directors’ Code of Conduct and Code of Ethics for Senior Management of the Company. All Board Members, Senior Management and personnel who are below the Senior Management level, but instrumental in the critical operations/functions are covered under the said Codes. Company continues to ensure effective implementation and enforcement of these Codes to achieve the objectives enshrined in these Codes. All the employees are updated and sensitized about these Codes. Copies of these Codes are readily made available to all the employees for their reference and compliance. These Codes have been also posted on the Company’s web site: www.hoec.com. All the employees under the scope of these Codes have affirmed their compliance thereof.


26

(ii) Composition of Audit CommitteeAudit Committee consists of four Directors. Majority of the members of the Committee are Non-Executive Independent Directors.

Mr. Mukesh Butani, a Non-Executive Independent Director, is the Chairman of the Committee.

All the members of this Committee possess good knowledge of finance, accounts and basic elements of corporate laws.

The Company Secretary is also the Secretary to the Audit Committee.

(iii) Meetings and attendance during the year

During the year under review, five (5) Audit Committee Meetings were held on, April 30, 2010, May 29, 2010, August 12, 2010, October 25, 2010 and January 31, 2011.

The details of attendance of Members of the Committee are given below:

Sr. No. Name of members and their position No. of Committee meetings attended

1. Mr. Mukesh Butani, Chairman 5 of 5

2. Mr. R. Vasudevan, Member 5 of 5

3. Mr. Sunil Behari Mathur, Member 3 of 5

4. Mr. Paolo Carmosino, Member 1 of 5

4. Compensation & RemUneRation Committee

(i) Terms of Reference

The terms of reference of the Compensation & Remuneration Committee, inter alia, are to decide the term of services and compensation payable to Whole-time/Managing Director/ Joint Managing Director and to discharge such other functions as may be referred by the Board from time to time. Additionally, the Committee also considers the compensation payable to senior executives of the Company. It is also entrusted with the duty to administer the Long Term Incentive Plan of the Company including the ESOS.

(ii) Composition of Committee

The Committee comprises of five directors. Mr. R. Vasudevan, a Non-Executive Independent Director, is the Chairman of the Committee.

7. Any material default in financial obligation to and by the Company.

8. Details of any joint venture or collaboration agreement.

9. Any issue, which involves possible public liability claims of substantial nature, including any judgment or order, which may have passed strictures on the conduct of the Company or taken an adverse view regarding another enterprise that can have negative implication on the Company.

10. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material.

11. Non-compliance of any regulatory, statutory, or listing requirements and shareholders service such as non payment of dividend, delay in share transfer etc.

12. Sale of material nature, of investments, subsidiary, assets, which is not in normal course of business.

13. Status of each of the projects and criticalities, if any.

14. Prior approval for award of contract on behalf of the JV for HOEC operated Projects beyond a threshold value as decided by the Board.

3. aUdit Committee

(i) Terms of Reference

The terms of reference of the Audit Committee inter alia are to review financial reporting process, reports of the Internal Auditors, internal control systems and quarterly/annual financial statements, risk management, appointment/re-appointment of Statutory Auditors and Internal Auditors and payment of remuneration to them etc. The scope of the activities of the Audit Committee is as prescribed under Section 292A of the Companies Act, 1956 as well as Clause 49(II) of the Listing Agreement entered into with the Stock Exchanges.

The Audit Committee periodically meets Statutory Auditors and Internal Auditors to discuss their findings, suggestions, reviews and action taken by the Company.

The Audit Committee also reviews the financial statements including investments of HOEC Bardahl India Limited (wholly owned subsidiary of HOEC).


27

The Managing Director of the Company did not draw any remuneration from the Company.

The remuneration package of the Joint Managing Director comprises of salary, allowances, perquisites and bonuses as approved by the shareholders at the 24th Annual General Meeting held on September 30, 2008 and as revised by the Board from time to time. The details of remuneration received by Joint Managing Director during the Financial Year 2010-2011 is given hereunder:

Name FIXED COMPONENT PERFORMANCE LINKED INCENTIVE Total Remuneration

(Refer Note 2 below)

Salaries Contribution to provident fund & super-

annuationfund

Other allowances/ perquisites

(Refer note 1 below)

Total Bonus Stock Options (No. of shares)

Total

Rs. Rs. Rs. Rs. (A) Rs. Rs. (B) Rs. (A+B)

Mr. Manish Maheshwari, Joint Managing Director

8,073,000 2,179,710 9,929,974 20,182,684 2,600,000 Nil 2,600,000 22,782,684

Notes:1. In computing the above Managerial Remuneration, perquisites have been valued in terms of actual

expenditure incurred by the Company in providing the benefits or notional amount as per Income Tax Rules has been added, where the actual amount of expenditure cannot be ascertained.

2. As per the policy of the Company, gratuity and eligible leave encashment is payable at the time of retirement/separation and, hence, gratuity and leave encashment are included in the remuneration of the year in which they are payable

(B) REMUNERATION PAID TO NON-EXECUTIVE INDEPENDENT DIRECTORS DURING THE YEAR 2010-11.

All Non-Executive Directors (NEDs) of the Company are entitled to receive sitting fee for each meeting of the Board or Committee thereof attended by them.

In view of the governance responsibilities entrusted with the NEDs, effective from February 01, 2011, sitting fees to the NEDs, was increased by the Company from Rs. 5,000 to Rs. 20,000 for each Board Meeting or Committee thereof attended by the Director, in accordance with, and within the limit prescribed by, the Companies Act, 1956.

The details of sitting fees paid during the financial year 2010-11 are given hereunder:

Sr. No. Name of Director Sitting Fees (INR)

1. Mr. R. Vasudevan 90,000

2. Mr. Sunil Behari Mathur 40,000

3. Mr. Mukesh Butani 65,000

Directors are also eligible to Stock Options in accordance with ESOP Schemes of the Company. However, benefit of the Employee Stock Option Scheme is not available to the Promoter

During the year, the Board nominated Mr. Marcello Simoncelli, a Non-Executive Director as the member of the Committee w.e.f. October 25, 2010. The composition of Committee is as under:

Sr. No. Name Designation

1. Mr. R. Vasudevan Chairman

2. Mr. Mukesh Butani Member

3. Mr. Sunil Behari Mathur Member

4. Mr. Sergio Adriano Laura Member

5. Mr. Santo Lagana’ (upto September 30, 2010)

Member

6. Mr. Marcello Simoncelli (appointed w.e.f. October 25, 2010)

Member

(iii) Attendance during the year

During the year under review, two (2) Compensation & Remuneration Committee meetings were held on August 12, 2010 and January 31, 2011.

Attendance details of Members of the Compensation & Remuneration Committee are given below:

Sr. No. Name of member and their position No. of Committee meetings attended

1. Mr. R. Vasudevan, Chairman 2 of 2

2. Mr. Mukesh Butani, Member 2 of 2

3. Mr. Sunil Behari Mathur, Member 1 of 2

4. Mr. Sergio Adriano Laura, Member 2 of 2

5. Mr. Santo Lagana’ (upto September 30, 2010) 1 of 1

6. Mr. Marcello Simoncelli (appointed w.e.f. October 25, 2010)

1 of 1

(iv) Remuneration Policy

The Company inter-alia while deciding the remuneration package takes into consideration, the following:

(a) Employment scenario and demand for talent in the upstream oil and gas sector;

(b) Remuneration package of the industry/other industries for the requisite managerial talent; and

(c) The qualification and experience held by the appointee.

(v) Details of Remuneration of Directors:

(A) REMUNERATION TO THE MANAGING DIRECTOR/JOINT MANAGING DIRECTOR DURING THE YEAR 2010-11.

The Managing Director of the Company is appointed as per the terms and conditions decided by the Board of Directors of the Company.


28

The Shareholders/Investors Grievance Committee meetings are also attended by the Company Secretary & Compliance Officer.

Name, Designation & Address of Company Secretary & Compliance Officer are given hereunder:

Mr. Sanjay Tiwari Chief Legal Counsel & Company Secretary Hindustan Oil Exploration Company Limited‘Lakshmi Chambers’ 192, St. Mary’s Road, AlwarpetChennai-600 018 (Tamil Nadu) IndiaTel : +91-(044) 66229000Fax : +91-(044) 66229011/12E-mail : [email protected]

Details of number of grievances received and replied/resolved during the year are as under:

Particulars Total Grievances/Complaints

received

Total Grievances/Complaints resolved/addressed

Pending Grievances/

Complaints as on 31.03.2011

Received from Investors 50 50 Nil

Received from NSDL/CDSL 01 01 Nil

Referred by SEBI 36 36* Nil

Referred by Stock Exchanges 07 07 Nil

Total 94 94 Nil

* excludes two complaints which could not be resolved for absence or incorrect information for instance incorrect Ledger Folio Number, non disclosure of Depository Participant ID and Client ID, and the Company has sought clarification/missing information so as to take suitable action.

There are no grievance/complaints from shareholders which remained unaddressed/unresolved except where Company was restrained by courts or constrained because of courts’ proceedings, or subject matters of complaints were disputed. Every effort is made to redress investors’ grievances/complaints in least possible time.

There was no pending share transfer request as on March 31, 2011.

6. pRomoteRs

Eni UK Holding plc, Burren Shakti Limited and Burren Energy India Limited (referred to as “Eni Group”) collectively hold 47.18% of the paid-up capital of the Company. Eni Group, the promoters have declared that they have not pledged any of their shareholding in the Company.

Director(s) or Director(s) who either by himself/themselves or through his/their relative or through any body corporate, directly or indirectly hold(s) more than 10% of the outstanding equity shares of the Company.

During the year, Stock Options have been granted to Non-Executive Independent Directors namely Mr. R. Vasudevan, Mr. Sunil Behari Mathur, and Mr. Mukesh Butani. Details of stock options granted to Non-Executive Independent Directors are given in Directors’ Report. None of the Directors are related to each other.

While the Compensation and Remuneration Committee has recommended an aggregate commission of INR 3.0 million to be distributed amongst the Non Executive Directors (NEDs), however the NEDs have chosen not to accept this commission as a gesture to support the Company in its immediate endeavors.

5. shaReholdeRs / investoRs GRievanCe Committee

The terms of reference of the Shareholders/Investors Grievance Committee inter alia are to look into the shareholders/investors complaints pertaining to transfer and transmission of shares, issue of duplicate shares, non-receipt of balance sheet, dividends etc.

To facilitate prompt services to the shareholders of the Company, Mr. Sanjay Tiwari, Chief Legal Counsel & Company Secretary and Mr. Minesh Bhatt, Assistant Company Secretary, are severally authorized to approve the Share Transfer and its related processes/procedures/activities viz., splitting, consolidation, replacement, issue of duplicate share certificate, dematerialization and rematerialisation of equity shares etc. Mr. Sanjay Tiwari also acts as a Compliance Officer to the Shareholders/Investors Grievance Committee.

During the year under review, five (5) Shareholders/Investors Grievance Committee meetings were held on April 30, 2010, May 29, 2010, August 12, 2010, October 25, 2010 and January 31, 2011. The composition of the Shareholders/Investors Grievance Committee and the details of meetings attended by Committee members are given below:

Sr. No. Name of members and their position No. of Committee meetings attended

1. Mr. R. Vasudevan, Chairman 5 of 5

2. Mr. Paolo Carmosino, Member 1 of 5

3. Mr. Manish Maheshwari, Member 5 of 5


29

until the conclusion of the 27th Annual General Meeting of the Company (passed at the 26th AGM held on September 30, 2010 at Sr. No. 6 of Notice).

2. No Special Resolution was passed through postal ballot during the last year. The Company is not anticipating any Special Resolution to be passed through Postal Ballot and hence procedure for postal ballot has not been provided for.

8. disClosURes

(a) Related Party Transactions are disclosed in the Notes to Accounts forming part of the Annual Report. None of the transactions with any of the related parties were in conflict with the interest of the Company.

(b) There are no penalties, strictures imposed on the Company by Stock Exchange or SEBI or any Statutory Authority for non-compliance by the Company, on any matter related to capital markets, during the last three years.

(c) Though Whistle Blower Policy is non-mandatory, the Company has adopted the same, which has been approved by the Board. During the year, no personnel have been denied access to the Audit Committee. The Whistle Blower Policy is available on the web site of the Company at www.hoec.com

(d) All the mandatory requirements under Clause 49 of Listing Agreement in respect of Corporate Governance have been complied with. The Company is inter alia in compliance with the non-mandatory requirements relating to the Remuneration Committee and Whistle Blower Policy.

(e) In respect of adoption of other non-mandatory requirements, the Company will review its implementation from time to time. Further, the Company has also ensured that the persons who are appointed as Independent Director/(s) have the requisite qualifications and experience which would be useful to the Company and which, in the opinion of the Company, would enable them to contribute effectively to the Company in their capacity as Independent Directors.

(f ) Transfer to Investor Education and Protection Fund

The Company in compliance with Section 205C of the Companies Act, 1956, has deposited an amount of Rs. 926,843 being the amount of unclaimed/unpaid dividend for the financial year 2002-03 with the Investor Education and Protection Fund.

7. details on GeneRal Body meetinGs

Location, Date and Time of last three Annual General Meetings is as under:

Year Location Date Time

2007-2008 “Tropicana Hall” Taj Residency Vadodara Akota Gardens Akota, Vadodara – 390 020.

September 30, 2008

10:30 a.m.

2008-2009 “Tropicana Hall” The Gateway Hotel Vadodara Akota Gardens Akota, Vadodara – 390 020.

September 29, 2009

10:30 a.m.

2009-2010 “Tropicana Hall” The Gateway Hotel Vadodara Akota Gardens Akota, Vadodara – 390 020.

September 30,2010

10:30 a.m.

NOTES :

1. The details of the Special Resolutions passed at the Annual General Meeting (AGM) for the last 3 years are as under:

a. Appointment of Mr. Luigi Ciarrocchi as the Managing Director of the Company w.e.f. September 30, 2008 until the conclusion of the 26th Annual General Meeting of the Company (passed at the 24th AGM held on September 30, 2008 at Sr. No. 9 of Notice).

b. Appointment of Mr. Manish Maheshwari as the Joint Managing Director of the Company w.e.f. September 30, 2008 until the conclusion of the 27th Annual General Meeting of the Company (passed at the 24th AGM held on September 30, 2008 at Sr. No. 10 of Notice).

c. Payment of remuneration/commission (including cash bonuses under Long Term Incentive Plan of the Company) in addition to the sitting fees for attending the meetings of the Board or Committees thereof, to the Non-Executive Directors of the Company not exceeding @ 1% of the net profits of the Company for the particular financial year in relation to which the remuneration/commission is payable (passed at the 24th AGM held on September 30, 2008 at Sr. No. 11 of Notice).

d. Appointment of Mr. Luigi Ciarrocchi as the Managing Director of the Company w.e.f. September 30, 2010


30

(g) Subsidiary Company

The Company does not have any material unlisted subsidiary and hence is not required to have an Independent Director of the Company on the Board of such subsidiary. The Audit Committee reviews the financial statements of the Company’s unlisted subsidiary company. The minutes of the meeting of the Board of Directors of the subsidiary company are periodically placed before and reviewed by the Board of Directors of the Company.

(h) The quarterly compliance report has been submitted to the Stock Exchanges where the Company’s equity shares are listed in the requisite format duly signed by the Compliance Officer, pursuant to Clause 49 of the Listing Agreement.

(i) A qualified company secretary carried out a Share Capital Audit to reconcile the total admitted capital with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) and the total issued and listed capital. The audit confirms that the total issued/paid-capital is in agreement with the total number of shares in physical form and the total number of shares held with NSDL and CDSL.

9. means of CommUniCation

The quarterly, half yearly, annual financial results are normally published in the Economic Times, (English & Gujarati) Ahmedabad editions, Vadodara Samachar, Vadodara edition and the Business Line, all editions. Additionally, the Company also published its annual financial results inter alia in the Economic Times, Mumbai edition. The results along with official news release are promptly displayed on the Company’s web site at www.hoec.com shortly after its submission of the stock exchanges. As the Company publishes the audited annual results within the stipulated period as required by the listing agreement with the Stock Exchanges, hence the unaudited results for the last quarter of the Financial Year are not published.

Green Initiative

As a responsible corporate citizen, the Company welcomes and supports the ‘Green Initiative’ taken by the Ministry of Corporate Affairs, Government of India (MCA), by its recent Circulars, enabling electronic delivery of documents including the Annual Report, Quarterly, Half Yearly results etc. to shareholders at

their e-mail address previously registered with the Depository Participants (DPs)/Registrars & Share Transfer Agents. Shareholders, who have not registered their e-mail addresses so far, are requested to register their e-mail addresses. Those holding shares in demat form can register their e-mail address with their concerned DPs. Shareholders who hold shares in physical form are requested to register their e-mail addresses with Link Intime India Pvt. Ltd. by sending a letter, duly signed by the first/soleholder quoting details of Folio No.

Company’s Corporate Website

Company’s website is a comprehensive reference on the Company’s management, business, policies, corporate governance, investor relations, HSE, subsidiary, updates and news. The section on “Investors” serves to inform the shareholders, by giving complete financial details, annual reports, shareholding patterns, corporate benefits, information relating to stock exchanges, registrars and share transfer agent etc.

Management Discussion & Analysis Report forms part of the Annual Report. All matters pertaining to industry structure and development opportunities and threats, performance, outlook, risks and concerns, internal control and systems etc, are discussed in the said Report.

10. GeneRal shaReholdeRs infoRmation

Day, Date, Time and Venue of 27th Annual General Meeting.

Wednesday, 28th day of September, 2011 at 10:30 a.m at “Tropicana Hall” The Gateway Hotel Vadodara Akota Gardens, Akota Vadodara – 390 020

Financial Year April 1, to March 31

Quarterly Financial Information

Results for the quarter ending on:

June 30, 2011

Within 45/60 days from the close of the quarter

September 30, 2011

December 31, 2011

March 31, 2012

Book Closure Date September 26, 2011 to September 28, 2011 (both days inclusive).

Dividend Payment Date

The Board declared an Interim Dividend of Rs. 0.50 (5%) per equity share of Rs. 10/- for FY 2010-11 on August 12, 2010 and paid before the due date stipulated by law, on September 03, 2010.

}


31

Equity Shares of the Company at present are listed at following Stock Exchanges:

1. Bombay Stock Exchange Limited (BSE)

2. National Stock Exchange of India Limited (NSE)

The Company has paid annual listing fees for the Financial Year 2011-12 to the said Stock Exchanges and annual maintenance/custodial charges/fees to the National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

Stock Code:

Bombay Stock Exchange Limited (BSE) : 500186

National Stock Exchange of India Limited : HINDOILEXP (NSE) Series : Eq

The Company has established the connectivity for trading of equity shares in the depository system with both depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). International Security Identification Number (ISIN) of the Company’s equity shares with NSDL and CDSL is INE345A01011.

Market Price Data:

Month

BSE Share PriceBSE

Sensex (High)

NSE S&P Nifty (High)

High Price (Rs.)

Low Price (Rs.)

April 2010 263.50 230.30 18,047.86 5,399.65

May 2010 240.50 165.00 17,536.86 5,278.70

June 20 10 232.20 177.80 17,919.62 5,366.75

July 2010 246.45 217.55 18,237.56 5,477.50

August 2010 264.85 219.00 18,475.27 5,549.80

September 2010 254.90 231.00 20,267.98 6,073.50

October 2010 273.00 229.55 20,854.55 6,284.10

November 2010 293.20 195.00 21,108.64 6,338.50

December 2010 244.90 177.15 20,552.03 6,147.30

January 2011 251.25 179.00 20,664.80 6,181.05

February 2011 194.40 155.50 18,690.97 5,599.25

March 2011 210.00 157.80 19,575.16 5,872.00

Share Price Chart

Registrars and Transfer Agents

Link Intime India Private Limited Unit: Hindustan Oil Exploration Company Limited B- 102 & 103, Shangrila Complex First Floor, Opp. HDFC Bank Near Radhakrishna Char Rasta Akota, Vadodara 390020.Email : [email protected] Tel : +91 (0265) 2356573, 2356794 Fax : +91 (0265) 2356791

Share Transfer System

Share Transfer in physical form requests are generally registered and returned within a period of 21 days from the date of receipt and request for dematerialisation, rematerialisation generally confirmed within a period of 21 days from the date of its receipt, if documents are complete in all respect.

As on March 31, 2011 Company has dematerialized 92,728,336 equity shares, which is 71.06% of the total equity shares.


32

DISTRIBuTIoN oF SHAREHoLDING AS oN MARCH 31, 2011

CATEGoRY (Shares)

PHYSICAL NSDL CDSL ToTAL

No. of Shareholders

No. of Shares

No. of Shareholders

No. of Shares

No. of Shareholders

No. of Shares

No. of Shareholders

No. of Shares

1 to 5000 11,622 2,221,496 43,439 12,857,974 21,158 4,623,624 76,219 19,703,094

5,001 to 10,000 0 0 247 1,843,800 93 671,985 340 2,515,785

10,001 to 20,000 1 12,766 120 1,799,216 39 534,748 160 2,346,730

20,001 to 30,000 1 20,600 44 1,106,729 12 294,373 57 1,421,702

30,001 to 40,000 0 0 15 539,628 2 71,874 17 611,502

40,001 to 50,000 0 0 24 1,107,762 1 40,744 25 1,148,506

50,001 to 1,00,000 1 69,178 33 2,478,102 5 407,963 39 2,955,243

Above 1,00,000 1 35,440,913 37 61,662,671 6 2,687,143 44 99,790,727

TOTAL 11,626 37,764,953 43,959 83,395,882 21,316 9,332,454 76,901 130,493,289

NSDL = National Securities Depository LimitedCDSL = Central Depository Services (India) Limited


33

SHAREHoLDING PATTERN AS oN MARCH 31, 2011

Category code

Category of Shareholders Number of Share

holders

Total number of shares

Number of shares held in dematerialized

form

Total shareholding as a percentage of total number of shares

Shares Pledged or otherwise encumbered

As a percentage

of (A+B)

As a percentage of

(A+B+C)

Number of Shares

As a percent-

tage

I II III IV V VI VII VIII IX = VIII/ IV x 100

(A) Shareholding of Promoter and Promoter Group

1. Indian 0 0 0 0 0 0 0 2. Foreign (Foreign

Companies) 4 61,569,134 26,046,277 47.18 47.18 0 0Sub Total (A)(2) 4 61,569,134 26,046,277 47.18 47.18 0 0 Total Shareholding of Promoter and Promoter Group (A) = (A)(1) + (A)(2) 4 61,569,134 26,046,277 47.18 47.18 0 0

(B) Public shareholding

1. Institutions (a) Mutual Funds/UTI 8 445,600 442,500 0.34 0.34 0 0.00(b) Financial Institutions/Banks 12 39,545 37,285 0.03 0.03 0 0.00(c) Insurance Companies 1 1,750,537 1,750,537 1.34 1.34 0 0.00(d) Foreign Institutional

Investors 41 7,938,270 7,937,270 6.08 6.08 0 0.00(e) Foreign Mutual Fund 1 480,000 480,000 0.37 0.37 0 0.00

Sub-Total (B)(1) 63 10,653,952 10,647,592 8.16 8.16 0 0.002. Non-institutions

(a) Bodies Corporate 1,432 23,603,896 23,558,773 18.09 18.09 0 0.00(b) Individuals

i Individual shareholders holding nominal share capital up to Rs. 1 lakh 73,392 19,074,739 17,201,841 14.62 14.62 0 0.00

ii Individual shareholders holding nominal share capital in excess of Rs. 1 lakh 178 13,737,668 13,737,668 10.53 10.53 0 0.00

(c) Any Other i Clearing Member/Market

Makers 307 397,252 397,252 0.30 0.30 0 0.00ii Non Resident Shareholders 1,467 1,261,931 944,216 0.97 0.97 0 0.00iii Trusts 7 35,846 35,846 0.03 0.03 0 0.00iv Market Makers 51 158,871 158,871 0.12 0.12 0 0.00

Sub-Total (B)(2) 76,834 58,270,203 56,034,467 44.66 44.66 0 0.00Total Public Shareholding (B) = (B) (1)+ (B) (2) 76,897 68,924,155 66,682,059 52.82 52.82 0 0.00ToTAL (A)+(B) 76,901 130,493,289 92,728,336 100 100 0 0.00

(C) Shares held by Custodians and against which Depository Receipts have been issued 0 0 0 0 0 0 0

GRAND ToTAL (A)+(B)+(C) 76,901 130,493,289 92,728,336 100 100 0 0.00

NOTES:1. The classification of the shareholders as provided by the depositories has been relied upon, except for correction of prima facie errors. Each folio/client id has been

regarded as a separate shareholder.

2. Promoters shares pledged data is based on their declarations.


34

Statement showing Shareholding of persons belonging to the category “Promoter and Promoter Group”

Sr. No.

Name of the Shareholder Total Shares held Shares pledged or otherwise encumbered

Number of

sharesAs a % of grand total (A)+(B)+(C)

Number of shares

As a Percentage

As a % of grand total (A)+(B)+(C)

of sub-clause (I) (a)

I II III IV V VI = V / III x 100 VII

1. Eni UK Holding plc. 26,046,277 19.96 NIL NIL NIL

2. Eni UK Holding plc. 69,178 0.05 NIL NIL NIL

3. Burren Shakti Limited 35,440,913 27.16 NIL NIL NIL

4. Burren Energy India Limited 12,766 0.01 NIL NIL NIL

Total 61,569,134 47.18 NIL NIL NIL

Statement showing Shareholding of persons belonging to the category “Public” and holding more than 1% of the total number of shares

Sr. No.

Name of the shareholder Number of shares

Shares as a percentage of total number of shares

{i.e., Grand Total (A)+(B)+(C) indicated in Statement at para (I)(a) above}

1. Housing Development Finance Corporation Limited 14,826,303 11.36

2. HSBC Bank (Mauritius) Limited 3,995,000 3.06

3. Jhunjhunwala Rakesh Radheshyam 2,935,143 2.25

4. Jhunjhunwala Rekha Rakesh 1,762,273 1.35

5. General Insurance Corporation of India 1,750,537 1.34

Total 25,269,256 19.36

Palej Production Facilities (PPF)Block CB-ON-7, Near Palej, Village Makan-392 220 Vadodara District (Gujarat), India.

North Balol Gas Collection Station (GCS)Block North Balol, Near Village Palaj-384 410Mehsana District (Gujarat), India.

Asjol Early Production System (EPS)Block Asjol, Village Katosan-384 430Mehsana District (Gujarat), India.

Tahara Floating Production Unit[under the control of Hardy Exploration & Production (India) Inc. (Operator of the Block)] Offshore Cauvery Basin, Block CY-OS-90/1, (Tamil Nadu), India.

ouTSTANDING ADR/GDR/WARRANTS ETC. :Not Applicable

PRoCESS / PLANT / PRoDuCTIoN FACILITIES LoCATIoN

The Company is engaged in the business of Oil and Gas exploration, development & production, and is at present operating at various fields as mentioned in section “Operational Highlights” in the Annual Report. The address of the respective production facilities is summarised as follows:

PY-1 Offshore Production Facility

SuN PlatformOffshore Cauvery BasinBlock PY-1, Tamil Nadu.

PY-1 Gas Processing PlantPillaiperumalnallur, Thirukadaiyur-609 311Nagapattinam District (Tamil Nadu), India.


35

ADDRESS FoR CoRRESPoNDENCESecretarial Department Hindustan Oil Exploration Company Limited ‘Lakshmi Chambers’ 192, St. Mary’s Road, Alwarpet Chennai – 600 018 (Tamil Nadu), India. Tel : + 91-(044)- 66229000 Fax : +91-(044)- 66229011/12 Email : [email protected]

11. otheR infoRmation to the shaReholdeRs

National - Electronic Clearing Service (NECS) Facility

As per RBI notification, with effect from 1st October, 2009, the remittance of dividend through Electronic Credit Service (ECS) is replaced by National Electronic Clearing Service (NECS). Shareholders are requested to intimate their Folio No(s), Name and Branch of the Bank in which they wish to receive the dividend, the Bank Account type, Bank Account Number allotted by their banks after implementation of Core Banking Solutions

(CBS) and the 9 digit MICR Code Number. Shareholders who hold shares in physical form are requested to intimate the above information in to the Registrar at its address.

Shareholders who have already intimated the above information to the Depository Participants (DPs)/Registrars of the Company need not take any further action in this regard.

Those Shareholders who do not wish to avail of the NECS facility, are requested to furnish to the DPs/Registrars, the Name and Branch of the Bank and the Bank Account Number allotted by their banks after implementation of Core Banking Solutions, which will be printed on the warrants.


R. VasudevanDate: August 05, 2011 Chairman

DECLARATIoN

I hereby declare that all the members of the Board and the senior management personnel of the Company have affirmed compliance with their respective Code of Conduct, as applicable to them for the Financial Year ended March 31, 2011.


Manish MaheshwariDate: August 05, 2011 Joint Managing Director


36

CEo/CFo CERTIFICATIoN uNDER CLAuSE 49We, Luigi Ciarrocchi and Manish Maheshwari in our capacity as the Managing Director and Joint Managing Director respectively of Hindustan Oil Exploration Company Limited (hereinafter referred to as the “Company”), hereby certify that :

1. We have reviewed the financial statements and the cash flow statement for the Financial Year 2010-11 and that to the best of our knowledge and belief:

(i) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;

(ii) these statements together present a true and fair view of the Company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations.

2. There are, to the best of our knowledge and belief, no transactions entered into by the Company during the year, which are fraudulent, illegal or violative of the Company’s code of conduct.

3. We accept responsibility for establishing and maintaining internal controls for financial reporting and that we have evaluated the effectiveness of internal control systems of the Company pertaining to financial reporting and we have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which we are aware and the steps we have taken or propose to take to rectify these deficiencies.

4. We have indicated to the Auditors and the Audit Committee (i) significant changes in internal control over financial reporting during the year;

(ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements, if any; and

(iii) instances of significant fraud of which we have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company’s internal control system over financial reporting.

Luigi Ciarrocchi Manish MaheshwariManaging Director Joint Managing Director

Date: May, 09, 2011

CERTIFICATE oN CoRPoRATE GoVERNANCETo,The MembersHindustan Oil Exploration Company Limited

I have examined the compliance of the conditions of Corporate Governance by Hindustan Oil Exploration Company Limited, for the financial year ended March 31, 2011 as stipulated in Clause 49, as amended, of the Listing Agreement of the said Company with the Stock Exchanges in India.

The compliance of conditions of Corporate Governance is the responsibility of the management. My examination was limited to procedures and implementation thereof adopted by the Company for ensuring the compliance of the conditions of Corporate Governance.

It is neither an audit nor an expression of opinion on the financial statement of the Company.

In my opinion and to the best of my information and according to the explanations given to me, I certify that the Company has complied with the conditions of Corporate Governance as stipulated in the Listing Agreement.

I state that as per the records maintained, no investor complaint/grievances against the Company are pending for a period exceeding one month before Shareholders’/Investors’ Grievance Committee.

I further state that such compliance is neither an assurance as to the future viability of the Company nor efficiency or effectiveness with which the management has conducted the affairs of the Company.

Niraj TrivediPlace : Vadodara Company SecretaryDate : August 05, 2011 CP. No. 3123

27th Annual Report 2010-2011HINDUSTAN OIL EXPLORATION COMPANY LIMITED

37

AUDITORS’ REPORT

To The MeMbers of hindusTan oil exploraTion CoMpany liMiTed

1. We have audited the attached Balance Sheet of Hindustan Oil Exploration Company Limited (‘the Company’) as at March 31, 2011 and also the Profit and Loss Account and the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. The attached financial statements and other financial information include Company’s share of net fixed assets, net current assets, expenses and cash flows aggregating to INR 588,294,910, INR (8,535,030), INR 297,162,129 and INR (19,049,219) respectively as at March 31, 2011 in respect of one of its unincorporated joint venture (‘UJV’) not operated by the Company, the accounts of which have been audited by the auditors of the respective UJV and relied upon by us.

4. The attached financial statements and other financial information include Company’s share of total exploration/development work in progress, net current assets, expenses and cash flows aggregating to INR 200,452,559, INR 11,021,398, INR Nil and INR (13,163) respectively as at March 31, 2011 in respect of two of its UJV’s not operated by the Company, the accounts of which have not been audited by the auditors of the respective UJV’s. The financial statements and other financial information have been incorporated based on un-audited financial statements as provided by the Operator of respective UJV’s and relied upon by us.

5. As required by the Companies (Auditor’s Report) Order, 2003 (as amended) (‘the Order’) issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. In respect of

clauses (ii), (ix)(a), (ix)(b), (ix)(c) and (xxi), our comments are restricted to the standalone operations of the Company and operations related to UJVs where the Company is the operator and it does not cover the unincorporated joint ventures where any third party is the operator.

6. Further to our comments in the Annexure referred to above, we report that:

i. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

ii. In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;

iii. The balance sheet, profit and loss account and cash flow statement dealt with by this report are in agreement with the books of account;

iv. In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956.

v. On the basis of the written representations received from the directors, as on March 31, 2011, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on March 31, 2011 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.

vi. In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India;

(a) in the case of the balance sheet, of the state of affairs of the Company as at March 31, 2011;

(b) in the case of the profit and loss account, of the profit for the year ended on that date; and

(c) in the case of cash flow statement, of the cash flows for the year ended on that date.

for s. r. baTliboi & assoCiaTesFirm registration number: 101049W

Chartered Accountants

per subramanian sureshPlace : New Delhi PartnerDate : May 9, 2011 Membership No.: 83673


38


ANNEXURE REFERRED TO IN PARAGRAH 5 OF OUR REPORT OF EVEN DATERe: Hindustan Oil Exploration Company Limited (‘the Company’)

(i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) All fixed assets have not been physically verified by the management during the year but there is a regular programme of verification which, in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. As informed, no material discrepancies were noticed on such verification.

(c) There was no substantial disposal of fixed assets during the year.

(ii) (a) The management has conducted physical verification of inventory at reasonable intervals during the year.

(b) The procedures of physical verification of inventory followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c) The Company is maintaining proper records of inventory and no material discrepancies were noticed on physical verification carried out at the end of the year.

(iii) (a-d) As informed, the Company has not granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, 1956. Therefore the provisions of clause 4(iii) (b), (c) and (d) of the Order are not applicable to the Company.

(e) The Company had taken loan from one company covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs. 5,697,500,000 and the year-end balance of loans taken from that party was Rs. 5,307,475,000.

(f ) In our opinion and according to the information and explanations given to us, the rate of interest and other terms and conditions for such loans are not prima facie prejudicial to the interest of the Company.

(g) In respect of loans taken, repayment of the principal amount is as stipulated and payment of interest have been regular.

(iv) In our opinion and according to the information and explanations given to us, as well as taking into consideration the management representation that certain items of fixed assets which are of special nature for which alternative quotations are not available, there is an adequate internal control system commensurate with the size of the Company

and the nature of its business, for the purchase of fixed assets and inventory and sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas. During the course of our audit, we have not observed any continuing failure to correct major weakness in internal control system of the Company.

(v) (a) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in section 301 of the Act that need to be entered into the register maintained under section 301 of the Act have been so entered.

(b) In respect of transactions made in pursuance of such contracts or arrangements exceeding the value of Rupees five lakhs entered into during the financial year, because of the unique and specialized nature of the items involved and absence of any comparable prices, we are unable to comment whether the transactions were made at prevailing market prices at the relevant time.

(vi) The Company has not accepted any deposits from the public.

(vii) In our opinion, the Company has an internal audit system commensurate with the size and nature of its business.

(viii) To the best of our knowledge and as explained, the Central Government has not prescribed maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 for the products of the Company.

(ix) (a) The Company is regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund, income-tax, sales-tax, wealth-tax, service tax, cess and other material statutory dues applicable to it. The provisions relating to employees’ state insurance, customs duty and excise duty are not applicable to the Company.

Further, since the Central Government has till date not prescribed the amount of cess payable under section 441 A of the Companies Act,1956, we are not in a position to comment upon the regularity or otherwise of the company in depositing the same.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, investor education and protection fund, income-tax, sales-tax, wealth-tax, service tax, cess and other undisputed statutory dues were

27th Annual Report 2010-2011HINDUSTAN OIL EXPLORATION COMPANY LIMITED 27th Annual Report 2010-2011HINDUSTAN OIL EXPLORATION COMPANY LIMITED

39

outstanding, at the year end, for a period of more than six months from the date they became payable.

(c) According to the records of the Company, the dues outstanding of income-tax, sales-tax, wealth-tax, service tax, and cess on account of any dispute, are as follows:

Name of Statute

Nature of the Dues

Amount (Rs.) Period to which the amount relates

Forum where Dispute is Pending

Income Tax Act, 1961

Tax and Interest

2,836,952 Assessment Year 2003-2004

Income Tax Appellate Tribunal

1,430,040 Assessment Year 2006-2007

145,499,694 Assessment Year 2007-2008

84,545,109 Assessment Year 2008-2009

Commissioner of Income Tax (Appeals)

Sub-total 234,311,795

Less: Refunds Adjusted *

(34,202,040)

Net Amount 200,109,755

Fringe Benefit Tax

741,728 Commissioner of Income Tax (Appeals)

* Refunds pertaining to other assessment years adjusted against disputed dues, based on intimations received from income tax department.

(x) The Company has no accumulated losses at the end of the financial year and it has not incurred cash losses in the current and immediately preceding financial year.

(xi) Based on our audit procedures and as per the information and explanations given by the management, we are of the opinion that the Company has not defaulted in repayment of dues to banks. The Company has no outstanding dues in respect of a financial institution and has not issued any debentures during the period.

(xii) According to the information and explanations given to us and based on the documents and records produced to us, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the Company is not a chit fund or a nidhi/ mutual benefit fund/society. Therefore, the provisions of clause 4(xiii) of the Order are not applicable to the Company.

(xiv) In our opinion, the Company is not dealing in or trading in shares, securities, debentures and other investments. Accordingly, the provisions of clause 4(xiv) of the Order are not applicable to the Company.

(xv) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions.

(xvi) Based on information and explanations given to us by the management, term loans were applied for the purpose for which the loans were obtained.

(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short-term basis have been used for long-term investment.

(xviii) The Company has not made any preferential allotment of shares to parties or companies covered in the register maintained under section 301 of the Act.

(xix) The Company did not have any outstanding debentures during the year.

(xx) The Company has not raised any money through public issues during the year.

(xxi) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the financial statements and as per the information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit.

for s.r. baTliboi & assoCiaTesFirm registration number: 101049W


per subramanian sureshPlace : New Delhi PartnerDate : May 9, 2011 Membership No.: 83673


40


BAlANcE SHEET AS AT MARcH 31, 2011(All amounts are in Indian rupees unless otherwise stated)

ScheduleAs at

March 31, 2011As at

March 31, 2010SOURcES OF FUNDS SHAREHOlDERS' FUNDSShare Capital 1 1,305,093,005 1,305,093,005Reserves and Surplus 2 10,437,390,222 9,711,476,034lOAN FUNDSSecured Loans 3 586,817,423 827,177,191Unsecured Loans 4 5,307,475,000 5,697,500,000DEFERRED TAX lIABIlITY (NET) (See Note 16(ii) of Schedule 15)

323,852,081 0

17,960,627,731 17,541,246,230

APPlIcATION OF FUNDS

FIXED ASSETS 5 AGross Block 17,822,676,387 17,755,460,598 Less : Depreciation, Depletion and

Amortisation 2,925,488,518 1,707,986,741 Net Block 14,897,187,869 16,047,473,857

EXPlORATION/DEVElOPMENT WORK IN PROGRESS 5 B 1,010,869,277 654,301,550 INVESTMENTS 6 1,102,907,373 29,131,475 FOREIGN cURRENcY MONETARY ITEM TRANSlATION DIFFERENcE AccOUNT (See Note 22 of Schedule 15)

0 2,501,863

DEFERRED TAX ASSET (NET) (See Note 16(ii) of Schedule 15)

0 53,147,919

cURRENT ASSETS, lOANS AND ADVANcES 7 A. Inventories 440,428,339 432,484,561 B. Sundry Debtors 473,980,559 412,325,942 C. Cash and Bank Balances 469,289,728 799,782,476 D. Other Current Assets 1,900,257 2,182,492 E. Loans and Advances 906,157,886 592,277,555

2,291,756,769 2,239,053,026 less : cURRENT lIABIlITIES AND

PROVISIONS 8 A. Current Liabilities 540,449,235 676,194,073 B. Provisions 801,644,322 808,169,387

1,342,093,557 1,484,363,460 NET cURRENT ASSETS 949,663,212 754,689,566

17,960,627,731 17,541,246,230 Significant Accounting Policies 14Notes to the Accounts 15Schedules referred to above form an integral part of the Balance Sheet.

In terms of our report of even date attached. On behalf of the Board of Directors

for s. r. batliboi & associates R. Vasudevan Manish Maheshwari(Firm Registration No. 101049W) Chairman Joint Managing DirectorChartered Accountants

per subramanian suresh PartnerMembership No. 83673

Sanjay Tiwari Chief Legal Counsel & Company Secretary

Place : New Delhi Place : New DelhiDate : May 09, 2011 Date : May 09, 2011


41

PROFIT AND lOSS AccOUNT FOR THE YEAR ENDED MARcH 31, 2011(All amounts are in Indian rupees unless otherwise stated)

ScheduleYear ended

March 31, 2011Year ended

March 31, 2010

INcOME

Sales 9 3,298,495,019 1,400,550,243

(Decrease)/Increase in Stock of Crude Oil, Condensate and Natural Gas 10 (13,895,394) 49,718,432

Other Income 11 88,149,165 138,631,677

3,372,748,790 1,588,900,352

EXPENDITURE AND cHARGES

Operating and Administrative Expenditure 12 846,891,993 385,760,889

Depreciation, Depletion and Amortisation of Fixed Assets 5A 1,222,879,767 471,949,918

Interest and Finance Charges 13 123,879,544 80,427,399

2,193,651,304 938,138,206

PROFIT BEFORE TAX 1,179,097,486 650,762,146

Provision for Current Income Tax 232,000,000 108,000,000

Provision for Deferred Tax (See Note 16(ii) of Schedule 15) 377,000,000 231,000,000

Provision for Wealth Tax 100,000 200,000

MAT Credit Entitlement (See Note 16(i) of Schedule 15) (232,000,000) (104,362,448)

PROFIT AFTER TAX 801,997,486 415,924,594

Profit Brought Forward 1,869,954,561 1,454,029,967

PROFIT AVAIlABlE FOR APPROPRIATION 2,671,952,047 1,869,954,561

APPROPRIATIONS:

Interim Dividend 65,246,645 0

Dividend Tax 10,836,653 0

Balance Carried to Balance Sheet 2,595,868,749 1,869,954,561

2,671,952,047 1,869,954,561

Earnings per Share of Rs.10 Face Value (Basic and Diluted) Rs. 6.15 Rs. 3.19

(See Note 15 of Schedule 15)

Significant Accounting Policies 14

Notes to the Accounts 15

Schedules referred to above form an integral part of the Profit and Loss Account.







42


cASH FlOW STATEMENT FOR THE YEAR ENDED MARcH 31, 2011(All amounts are in Indian rupees unless otherwise stated)

Particulars Year ended March 31, 2011

Year ended March 31, 2010

A. cASH FlOW FROM OPERATING AcTIVITIES Net Profit Before Tax 1,179,097,486 650,762,146

Adjustments for:Compensated Absences 449,482 573,500 Depreciation, Depletion and Amortisation 1,222,879,767 471,949,918 Dividend/Interest Income (73,621,758) (41,888,648)(Profit)/Loss on Sale/Discarded Assets (Net) (960,283) 0 Excess Liabilities/Provisions Written Back (9,968,767) (11,690,574)Amortisation of Foreign Currency Monetary Item Translation Difference Account 2,501,862 7,655,662 Unrealized Exchange (Gain)/Loss* (1,809,014) 14,312,714 Interest and Finance Charges 123,879,544 80,427,399

OPERATING PROFIT BEFORE WORKING cAPITAl cHANGES 2,442,448,319 1,172,102,117 Adjustments for:Sundry Debtors (59,845,603) (203,486,103)Loans and Advances (including Site Restoration Deposits) 56,784,960 119,451,397Inventories (7,943,778) 230,429,742 Current Liabilities and Provisions (125,430,722) (3,000,889,154)

cASH FROM/(USED IN) OPERATIONS 2,306,013,176 (1,682,392,001)Taxes Paid (428,694,520) (184,836,151)

NET cASH FROM/(USED IN) OPERATING AcTIVITIES 1,877,318,656 (1,867,228,152)B. cASH FlOW FROM INVESTING AcTIVITIES

Purchase of Fixed Assets (13,584,392) (4,866,392)Proceeds from Sale of Fixed Assets 1,836,631 9,548 Development Expenditure (149,630,612) (5,544,516,948)Exploration Expenditure (334,313,504) (70,477,412)Proceeds from Sale of Investments 78 0 Dividend/Interest Received 73,903,993 43,302,241

NET cASH USED IN INVESTING AcTIVITIES (421,787,806) (5,576,548,963)c. cASH FlOW FROM FINANcING AcTIVITIES

Secured Loans Repaid (237,262,541) (410,534,837)Unsecured Loans Repaid (332,704,071) 0 Unsecured Loans Taken 0 5,898,925,184 Interest and Finance Charges Paid (123,879,544) (89,081,574)Dividend Paid (including Dividend Tax) (76,083,298) 0

NET cASH (USED IN)/FROM FINANcING AcTIVITIES (769,929,454) 5,399,308,773

NET INcREASE/(DEcREASE) IN cASH AND cASH EQUIVAlENTS (A+B+c) 685,601,396 (2,044,468,342)Cash, Cash Equivalents:Opening Balance 550,418,562 2,594,886,904 Closing Balance 1,236,019,958 550,418,562

685,601,396 (2,044,468,342)components of cash and cash EquivalentsCash and Bank Balance as per Schedule 7(C)* 469,289,728 799,782,476 Current Investment – Units of Liquid and Liquid Plus Schemes of Mutual Funds 1,097,858,208 24,082,232 Adjustment for Unpaid Dividend Account and Share Application Money Account (5,357,252) (5,612,647)Adjustment for Site Restoration Deposits (See Note 2 of Schedule 15) (264,294,120) (227,273,440)Adjustment for Lien Marked Deposits/Accounts (See Note 2 of Schedule 15) (61,476,606) (40,560,059)Total Cash and Cash Equivalents as at Year End 1,236,019,958 550,418,562

* Includes effect of exchange loss of Rs. 341,711 (Previous Year: Rs. 16,074,496) on translation of foreign currency cash and cash equivalents.

Schedules 1 to 15 form an integral part of the Accounts.







43

Schedules Forming Part of the Balance Sheet as at March 31, 2011(All amounts are in Indian rupees unless otherwise stated)

As at March 31, 2011


ScHEDUlE 1

SHARE cAPITAl

AUTHORISED

200,000,000 Equity Shares of Rs.10 each 2,000,000,000 2,000,000,000

ISSUED

130,563,363 Equity Shares of Rs.10 each 1,305,633,630 1,305,633,630

SUBScRIBED AND FUllY PAID-UP

130,493,289 Equity Shares of Rs.10 each fully paid-up 1,304,932,890 1,304,932,890

Add : Amount Paid-up on Shares Forfeited 160,115 160,115

1,305,093,005 1,305,093,005

ScHEDUlE 2

RESERVES AND SURPlUS

Securities Premium Account 7,841,521,473 7,841,521,473

Balance in Profit and Loss Account 2,595,868,749 1,869,954,561

10,437,390,222 9,711,476,034

ScHEDUlE 3

SEcURED lOANS


Loans from Banks

Foreign Currency Term Loan 370,817,423 491,177,191

Rupee Term Loans 216,000,000 336,000,000

586,817,423 827,177,191

ScHEDUlE 4

UNSEcURED lOANS

Other Loan

Loan from ENI Coordination Center S.A., Belgium 5,307,475,000 5,697,500,000

5,307,475,000 5,697,500,000

Note:

Amounts Repayable within One Year 451,700,000 341,850,000


44


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45




ScHEDUlE 6INVESTMENTS (FUllY PAID) – At costlONG TERM IN WHOllY OWNED SUBSIDIARY cOMPANY – UNQUOTED

50,002 (Previous Year 50,002) Equity Shares of Rs. 100 each of HOEC Bardahl India Limited 5,000,200 5,000,200

UNQUOTED (NON-TRADE)100,000 (Previous Year 100,000) Equity Shares of Rs. 10 each of Gujarat Securities

Limited 1,000,000 1,000,000 cURRENTQUOTED (NON-TRADE)

318 (Previous Year 318) Equity Shares of Rs. 10 each of Reliance Industries Limited 25,975 25,975

318 (Previous Year 318) Equity Shares of Rs. 5 each of Reliance Communication Ventures Limited 19,332 19,332

Nil (Previous Year 318) Equity Shares of Rs. 5 each of Reliance Natural Resources Limited 0 350

23 (Previous Year 23) Equity Shares of Rs. 10 each of Reliance Energy Limited 3,219 3,219

15 (Previous Year 15) Equity Shares of Rs. 10 each of Reliance Capital Limited 166 166

79 (Previous Year Nil) Equity Shares of Rs. 10 each of Reliance Power Limited 272 0 UNQUOTED (NON-TRADE)UNITS OF lIQUID/lIQUID PlUS ScHEMES OF MUTUAl FUNDS

2,172,161 (Previous Year 142,793) Units of Rs. 10 each of HDFC Cash Management Fund – Saving Plan – Daily Dividend – Reinvestment 23,103,975 1,518,807

390,204 (Previous Year Nil) Units of Rs. 1,000 each of UTI Treasury Advantage Fund – Institutional Plan (Daily Dividend Option) – Reinvestment 390,287,807 0

28,630,123 (Previous Year Nil) Units of Rs. 10 each of Birla Sun Life Ultra Short Term Fund – Institutional – Daily Dividend 286,458,692 0

3,882,390 (Previous Year Nil) Units of Rs. 10 each of Kotak Floater Long Term Fund – Daily Dividend 39,133,719 0

2,863,462 (Previous Year Nil) Units of Rs. 10 each of ICICI Prudential Floating Rate Plan D – Daily Dividend – Dividend Reinvestment 286,412,040 0

7,223,444 (Previous Year Nil) Units of Rs. 10 each of HDFC Cash Management Fund – Treasury Advantage Plan – Wholesale – Daily Dividend – Reinvestement 72,461,975 0

Nil (Previous Year 166,025) Units of Rs. 10 each of ICICI Prudential Flexible Income Plan – Premium – Daily Dividend 0 17,554,704

Nil (Previous Year 409,607) Units of Rs. 10 each of Kotak Liquid (Institutional Premium) – Daily Dividend 0 5,008,721

1,103,907,372 30,131,474 Less : Provision for Diminution in Value of Investments of Gujarat Securities Limited 999,999 999,999

1,102,907,373 29,131,475 Aggregate Cost of Quoted Investments 48,964 49,042 Market Value of Quoted Investments 402,764 445,773 Aggregate Cost of Unquoted Investments 1,103,858,408 30,082,432


46





ScHEDUlE 7cURRENT ASSETS, lOANS AND ADVANcES(A) INVENTORIES

Crude Oil, Condensate and Natural Gas (See Note 19 (ii) of Schedule 15) 114,565,190 100,960,540 Stores, Spares, Capital Stock and Drilling Tangibles 325,863,149 331,524,021

440,428,339 432,484,561 (B) SUNDRY DEBTORS

(Unsecured, Considered Good) Outstanding for a Period Less than Six Months 473,980,559 412,325,942

473,980,559 412,325,942 (c) cASH AND BANK BAlANcES

Cash on Hand 2,795 3,438 Balances with Scheduled Banks Current Accounts (See Note 2(a) of Schedule 15) 71,344,939 25,309,996 Unclaimed/Unpaid Dividend Accounts 4,919,031 5,172,671 Unclaimed/Unpaid Share Application Money 438,221 439,976 Deposit Accounts (See Notes 2(b) of Schedule 15) 385,998,319 744,474,999 Balances with Non-Scheduled Banks Current Accounts (See Notes 3 of Schedule 15) 6,586,423 24,381,396

469,289,728 799,782,476 (D) OTHER cURRENT ASSETS

Interest Accrued on Deposits 1,900,257 2,182,492 1,900,257 2,182,492

(E) lOANS AND ADVANcES (See Note 3 & 4 below) Advances Recoverable in Cash or in Kind or for Value to be Received

(See Note 3(c) & 4 below)152,234,406 267,256,167

Service Tax Input Credit 1,257,364 957,790 MAT Credit Entitlement (See Note 16(i) of Schedule 15) 367,362,448 135,362,448 Advance Income Tax [Net of Provision for Taxation of Rs. 1,171,963,496 (Previous Year

Rs. 939,963,496)]

399,802,464 203,199,946

Advance Fringe Benefit Tax [Net of Provision for Fringe Benefit Taxation of Rs. 8,500,000 (Previous Year

Rs. 8,500,000)]

1,058,060 1,058,060

921,714,742 607,834,411 Less : Provision for Doubtful Advances 15,556,856 15,556,856

906,157,886 592,277,555

TOTAL (A) + (B) + (C) + (D) + (E) 2,291,756,769 2,239,053,026 Notes:1. Maximum Amount Due from HOEC Bardahl India Limited at any time

during the year 3,242,820 28,029,152 2. Amount Due from HOEC Bardahl India Limited 0 0 3. Of the above: (a) Secured, Considered Good 0 0 (b) Unsecured, Considered Good 906,157,886 592,277,555 (c) Unsecured, Considered Doubtful 15,556,856 15,556,856

921,714,742 607,834,411 4. Advances Recoverable in Cash or in Kind or for Value to be Received includes

Unamortised Borrowing Cost of Rs. 10,941,385 (Previous Year Rs. 15,413,163)


47




ScHEDUlE 8

cURRENT lIABIlITIES AND PROVISIONS

(A) cURRENT lIABIlITIES

Sundry Creditors

– Outstanding Dues to Micro Enterprises and Small Enterprises (See Note 5 of Schedule 15) 218,937 193,025

– Outstanding Dues to Creditors other than Micro Enterprises and Small Enterprises 492,524,246 590,266,533

Unclaimed/Unpaid Dividend (See Note 2 below) 4,919,031 5,172,671

Unclaimed/Unpaid Share Application Money (See Note 2 below) 438,221 439,976

Other Liabilities (See Note 1 below) 42,348,800 80,121,868

540,449,235 676,194,073

(B) PROVISIONS

Provision for Compensated Absences 3,822,982 3,373,500

Provision for Gratuity 2,942,768 2,852,813

Provision for Site Restoration (See Note 18 of Schedule 15) 794,432,500 801,505,000

Provision for Taxation

– Wealth Tax [Net of Advance Tax of Rs. 841,668 (Previous Year Rs. 749,666)] 446,072 438,074

801,644,322 808,169,387

TOTAL (A) + (B) 1,342,093,557 1,484,363,460

Notes:

1. Includes Security Deposit of Rs. 6,000,000 (Previous Year Rs. 6,000,000) received from HOEC Bardahl India Ltd., the Wholly Owned Subsidiary of the Company.

2. There are no amounts due and outstanding, to be credited to the Investor Education and Protection Fund.

Schedules Forming Part of the Profit and loss Account for the Year Ended March 31, 2011(All amounts are in Indian rupees unless otherwise stated)



ScHEDUlE 9

SAlES

(A) SAlES (See Note 19(i) of Schedule 15)

Sale of Crude Oil, Condensate and Natural Gas 3,569,940,961 1,457,752,788

Less: Profit Petroleum to Government of India 278,501,942 64,258,545

3,291,439,019 1,393,494,243 (B) SERVIcES

Warehousing Services [Tax Deducted at Source Rs. 778,272 (Previous Year Rs. 830,028)] 7,056,000 7,056,000

7,056,000 7,056,000

TOTAL (A) + (B) 3,298,495,019 1,400,550,243


48





ScHEDUlE 10

(DEcREASE)/INcREASE IN STOcK OF cRUDE OIl, cONDENSATE AND NATURAl GAS

Increase in Gross Stock of Crude Oil, Condensate and Natural Gas (See Note 19(ii) of Schedule 15) 13,604,650 51,373,101

Less : Profit Petroleum to Government of India 27,500,044 1,654,669

(13,895,394) 49,718,432

ScHEDUlE 11

OTHER INcOME

Interest Income (Gross) on Bank Deposits 23,622,752 21,754,558

[Tax Deducted at Source Rs. 975,694 (Previous Year Rs.1,307,640)]

Dividend from Long Term – Trade Investments 531 4,647

Dividend from Current – Non Trade Investments 49,998,475 20,129,443

Profit on Sale of Assets (Net) 960,283 0

Gain on Foreign Exchange Fluctuation (Net) (See Note 20 of Schedule 15) 1,907,086 84,875,266

Provisions for Earlier Years Written Back (See Note 9 of Schedule 15) 9,968,767 11,690,574

Miscellaneous Income 1,691,271 177,189

88,149,165 138,631,677

ScHEDUlE 12

OPERATING AND ADMINISTRATIVE EXPENDITURE

A. OPERATING EXPENDITURE

Hire Charges 207,699,344 131,407,079

Insurance 34,063,686 14,923,378

Fuel, Water and Others 10,326,998 6,643,891

Plant – Repairs & Maintenance 19,588,286 9,007,131

Manpower Costs & Overheads 132,524,368 51,659,036

Transportation and Logistics 154,581,370 83,107,029

Consumables 1,384,027 277,314

Royalty, Cess & Other Duties 202,321,065 75,867,293

Other Production Expenses 28,438,116 18,020,388

790,927,260 390,912,539 B. ADMINISTRATIVE EXPENDITURE

a) STAFF EXPENSES

Salaries, Allowances and Bonus (See Notes 6(a) & 10(b) of Schedule 15) 112,220,972 87,567,594

Contribution to Provident and Other Funds (See Notes 6(a) & 10(a) of Schedule 15) 10,288,828 8,581,404

Welfare Expenses 3,916,479 2,607,167

126,426,279 98,756,165


49




ScHEDUlE 12

OPERATING AND ADMINISTRATIVE EXPENDITURE (contd.)

b) OTHER EXPENSES

Office and Guest House Rent 12,964,933 9,631,231

Electricity 2,030,645 1,933,880

Rates and Taxes 386,667 451,363

Repairs and Maintenance – Others 11,577,390 11,937,030

General Office Expenses 874,362 482,798

Travelling and Conveyance 9,093,059 4,798,003

Communication Expenses 4,661,666 3,399,364

Printing and Stationery 3,631,070 2,373,082

Legal and Professional Expenses (See Note below) 47,903,425 34,051,285

Insurance 344,851 206,562

Directors' Sitting Fees and Commission (See Notes 6(b) & 6(c) of Schedule 15) 3,195,000 6,170,000

Auditors' Remuneration (See Note below)

As Statutory Auditors 1,775,000 1,450,000

For Tax Audit 100,000 150,000

For Other Matters 25,000 395,000

Reimbursement of Expenses 69,236 84,859

1,969,236 2,079,859

Miscellaneous Expenses 6,057,468 7,178,497

104,689,772 84,692,954

c) TOTAl (a+b) 231,116,051 183,449,119

d) lESS : REcOVERY OF EXPENSES (See Note 21 of Schedule 15) 175,151,318 188,600,769

TOTAl ADMINISTRATIVE EXPENDITURE (c-d) 55,964,733 (5,151,650)

TOTAl OPERATING AND ADMINISTRATIVE EXPENDITURE (A+B) 846,891,993 385,760,889

Note:

Legal and Professional Expenses for the current year includes and Auditors' Remuneration excludes Rs. 750,000 (Previous Year Rs. 1,400,000) (Excluding Service Tax) paid/payable towards tax matters to a firm in which some partners of the erstwhile audit firm were partners.

Auditors' Remuneration for the current year includes Rs. 244,236 (Excluding Service Tax) paid to erstwhile audit firm.

Auditors' Remuneration excludes Rs. 202,831 (Previous Year Rs. 214,225) paid/payable towards service tax for which service tax input credit has been availed.

ScHEDUlE 13

INTEREST AND FINANcE cHARGES

Interest on Fixed Term Loans 117,763,626 75,943,045

Bank Charges and Commission 1,644,140 1,079,260

Other Finance Charges 4,471,778 3,405,094

123,879,544 80,427,399

Schedules Forming Part of the Accounts for the Year Ended March 31, 2011


50


SCHEDULE 14

SIGNIFICANT ACCOUNTING POLICIES

1. Background Hindustan Oil Exploration Company Limited (‘the Company’) was incorporated in India on September 22, 1983 under the provisions of the

Companies Act, 1956 and is listed on the National Stock Exchange (‘NSE’) and Bombay Stock Exchange (‘BSE’). The Company is engaged in the exploration, development and production of crude oil and natural gas in India, both onshore and offshore.

The Company is participant in various Oil and Gas blocks/fields (which are in the nature of jointly controlled assets) granted by the Government of India through Production Sharing Contracts (‘PSC’) entered into between the Company and Government of India and other venture partners. The Company has seven onshore assets of which three are located in Cambay basin in the state of Gujarat, one in Assam Arakan basin in the state of Assam, two in Jaisalmer Basin in the state of Rajasthan and one in Pranhita Godavari basin in the state of Andhra Pradesh. The Company has three offshore assets of which two assets are located in the Cauvery basin on the east coast of India, and one in Gulf of Cambay on the west coast of India. Details of Company’s participating interest are fully discussed in Note 12 to Schedule 15.

2. Significant Accounting Policies (i) Basis of preparation The financial statements have been prepared to comply in all material respects with the Accounting Standards notified by Companies

(Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared under the historical cost convention on an accrual basis. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year. The financial statements of the Company reflect its share of assets, liabilities, income and expenditure of the Unincorporated Joint Ventures which are accounted on the basis of available information in the audited/unaudited financial statements of the Unincorporated Joint Ventures on line by line basis with similar items in the Company’s accounts to the extent of the participating interest of the Company as per the various “Production Sharing Contracts”. The financial statements of the Unincorporated Joint Ventures are prepared by the respective Operators in accordance with the requirements prescribed by the respective Production Sharing Contracts of the Unincorporated Joint Ventures. Hence, in respect of these Unincorporated Joint Ventures, certain disclosures required under the Accounting Standards notified by Companies (Accounting Standards) Rules, 2006, (as amended), other pronouncements of The Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956 have been made in the financial statements of the Company based on audited/unaudited financial statement of the unincorporated Joint Venture.

(ii) Use of Estimates The preparation of the financial statements requires the Management to make estimates and assumptions considered in the reported amounts

of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period like depletion of Producing Properties, estimate of Site Restoration Liability, expensing of the estimated Site Restoration Liability, provision for employee benefits, useful lives of fixed assets, provision for doubtful advances, provision for tax, recognition of MAT Credit, recognition of deferred tax asset etc. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results may vary from these estimates. Any revisions to accounting estimates are recognised prospectively.

(iii) Fixed Assets and Exploration and Development Costs Fixed Assets includes Fixed Assets and Producing Properties.

Fixed assets are stated at cost less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition of fixed assets which take a substantial period of time to get ready for its intended use are also included to the extent they relate to the period till such assets are ready to be put to use.

The Company generally follows the “Successful Efforts Method” of accounting for its exploration and production activities as explained below:

(a) Cost of exploratory wells, including survey costs, is expensed in the year when the well is determined to be dry/abandoned or is transferred to Producing Properties on attainment of commercial production.

(b) Cost of all appraisal programmes related to a Discovery are initially capitalised as “Exploration Expenditure”. If a Discovery is determined to be commercial pursuant to the appraisal programme, all appraisal costs, including the cost of unsuccessful appraisal wells, if any, are capitalised as Producing Properties on attainment of commercial production. If at the end of the appraisal programme, the Discovery is relinquished, then all appraisal costs related to the Discovery are charged to the Profit and Loss Account.

(c) Cost of temporary occupation of land, successful exploratory wells, appraisal wells, development wells and all related development costs, including depreciation on support equipment and facilities, are considered as development expenditure. These expenses are capitalised as Producing Properties on attainment of commercial production.

(d) Producing Properties, including the cost incurred on dry/abandoned wells in development areas, are depleted using “Unit of Production’’ method based on estimated proved developed reserves. Any changes in Reserves and/or Cost are dealt with prospectively from the



51

SCHEDULE 14 — SIGNIFICANT ACCOUNTING POLICIES (Contd.)

beginning of the year of such change. Hydrocarbon reserves are estimated and/or approved by the Management Committees of the Unincorporated Joint Ventures, which follow the International Reservoir Engineering Principles.

(e) If the Company/Unincorporated Joint Venture were to relinquish a block or part thereof, the accumulated acquisition and exploration costs carried in the books related to the block or part thereof, as the case may be, are written off as a charge to the Profit and Loss Account in the year of relinquishment.

Explanatory Note 1. All exploration costs including acquisition of geological and geophysical seismic information, license, depreciation on support equipment

and facilities and acquisition costs are initially capitalized as “Exploration Expenditure”, until such time as either the exploration well(s) in the first drilling campaign is determined to be successful, at which point the costs are capitalised as “Producing Properties”, or is determined to be unsuccessful, in which case such costs are written off consistent with para 2 below.

2. Exploration costs associated with drilling, testing and equipping exploratory well(s) are initially capitalized as “Exploration Expenditure” and retained in exploration expenditure-work-in-progress so long as:

(a) such well has found potential commercial reserves; or

(b) such well test result is inconclusive and is subject to further exploration or appraisal activity like acquisition of seismic, or re-entry of such well, or drilling of additional exploratory/step out well in the area of interest, such activity to be carried out no later than 2 years from the date of completion of such well testing

— until such time as such costs are transferred to “Producing Properties” on attainment of commercial production;

or

— else charged to the Profit and Loss Account.

Management makes quarterly assessment of the amounts included in “Exploration Expenditure-work-in-progress” to determine whether capitalization is appropriate and can continue. Exploration well(s) capitalized beyond 2 years are subject to additional judgment as to whether facts and circumstances have changed and therefore the conditions described in 2(a) and (b) no longer apply.

(iv) Site Restoration

Estimated future liability relating to dismantling and abandoning producing well sites and facilities is recognised when the installation of the production facilities is completed based on the estimated future expenditure determined by the Management in accordance with the local conditions and requirements. The corresponding amount is added to the cost of the Producing Property and is expensed in proportion to the production for the year and the remaining estimated proved developed reserves of hydrocarbons based on latest technical assessment available with the Company. Any change in the value of the estimated liability is dealt with prospectively and reflected as an adjustment to the provision and the corresponding Producing Property.

(v) Impairment

The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital.

After impairment, depreciation/depletion is provided in subsequent periods on the revised carrying amount of the asset over its remaining useful life.

A previously recognised impairment loss is increased or reversed depending on changes in circumstances. However the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.

(vi) Depreciation

(i) Depreciation is provided on the “Written Down Value’’ method at the rates specified in Schedule XIV of the Companies Act, 1956 or as per the estimated useful lives of the assets, whichever is higher.

(ii) Improvements to Leasehold premises are amortised over the remaining primary lease period.

(iii) Computer software is amortised over the license period or 10 years, whichever is lower.

(iv) Assets individually costing less than or equal to Rs. 5,000 are fully depreciated in the year of acquisition.

(vii) Investments

Investments are capitalised at cost plus brokerage and stamp charges. Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments. Current investments



52


are valued at lower of cost and fair value determined on an individual investment basis. Long term investments are valued at cost. However, provision for diminution in value is made to recognise a decline other than temporary in the value of the investments.

(viii) Inventories (i) Closing stock of crude oil, condensate and natural gas in saleable condition is valued at estimated Net Realisable Value. Estimated Net

Realisable Value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. (ii) Stores, spares, capital stock and drilling tangibles are valued at cost on first in first out basis/weighted average basis, as applicable, or

estimated Net Realisable Value, whichever is lower.

(ix) Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably

measured. (i) Revenue from the sale of crude oil, condensate and natural gas, net of Government’s share of Profit Petroleum (calculated as per

the provisions of the respective Production Sharing Contracts), where applicable, and Value Added Tax, is recognised on transfer of custody.

(ii) Service Income is recognised on accrual basis as per the contractual terms and is net of Service Tax. (iii) Delayed Payment charges, retrospective revision in prices, interest on delayed payments and interest on income tax refunds are

recognised as and when there is no uncertainty in the determination/receipt of the amount, on grounds of prudence. (iv) Interest Revenue is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. (v) Dividend Income is recognised when the right to receive the dividend is unconditional.

(x) Employee Benefits (a) Defined Contribution Plan (i) Provident Fund: Contributions towards employees’ provident fund are made to the Employees Provident Fund Scheme in

accordance with the statutory provisions. Contributions towards Employees’ Provident Fund are recognized as an expense in the year incurred. There are no obligations other than the contribution payable to the respective fund.

(ii) Superannuation Fund: The Company contributes a sum equivalent to 15% of eligible Employee’s basic salary to a Superannuation Fund administered by trustees. The Company has no liability for future Superannuation Fund benefits other than its annual contribution and recognizes such contributions as an expense in the year incurred.

(b) Defined Benefit Plan The Company makes annual contribution to a Gratuity Fund administered by trustees and managed by the Life Insurance Corporation

of India. The Company accounts its liability for future gratuity benefits based on actuarial valuation, as at the Balance Sheet date, determined every year by an Actuary appointed by the Company using the Projected Unit Credit method. Actuarial gains/losses are recognised in the Profit and Loss Account. Obligation under the defined benefit plan is measured at the present value of estimated future cash flows. The estimate of future salary increase takes into account inflation, likely increments, promotions and other relevant factors.

(c) Compensated Absences The liability for long term compensated absences carried forward on the Balance Sheet date is provided for based on actuarial valuation

done by an independent Actuary using the Projected Unit Credit method at the end of each accounting period. Short term compensated absences is recognized based on the eligible leave at credit on the Balance Sheet date and is estimated based on the terms of the employment contract.

(d) Other Employee Benefits Other employee benefits, including allowances, incentives etc. are recognised based on the terms of the employment contract.

(xi) Borrowing Cost Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Eligible borrowing costs

directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur.

(xii) Foreign Currency Transactions The Company translates foreign currency transactions into Indian Rupees at the rate of exchange prevailing at the transaction date. Monetary

assets and liabilities denominated in foreign currency are translated into Indian Rupees at the rate of exchange prevailing at the Balance




53

Sheet date. Exchange differences arising on the settlement of monetary items or on reporting the Company’s monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, excluding long term foreign currency monetary items (see below), are recognised as income or as expenses in the period in which they arise.

Exchange differences, both realised and unrealised, arising on reporting of long term foreign currency monetary items (as defined in the Accounting Standard - 11 notified by the Government of India) relating to the acquisition of a depreciable capital asset are added to/deducted from the cost of the asset and in other cases unrealised exchange differences are accumulated in a “Foreign Currency Monetary Item Translation Difference Account” in the Company’s Balance Sheet and amortized over the balance period of such long term asset/liability but not beyond March 31, 2011, by recognition as income or expense in each of such periods.

(xiii) Taxation Income Tax: Current tax is the amount of tax payable on the taxable income for the year and is provided with reference to the provisions of

the Income Tax Act, 1961. Deferred Tax: Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date.

Deferred tax assets and deferred tax liabilities are offset and relate to the taxes on income levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits.

At each Balance Sheet date the Company re-assesses unrecognised deferred tax assets. It recognises unrecognised deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be that sufficient future taxable income will be available against which such deferred tax assets can be realised.

MAT Credit: Minimum Alternate Tax (MAT) Credit is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period in accordance with the Guidance Note on “Accounting for Credit Available in respect of Minimum Alternate Tax under Income Tax Act, 1961”. In the year in which the MAT Credit becomes eligible to be recognised as an asset, the said asset is created by way of a credit to the Profit and Loss Account and shown as MAT Credit Entitlement. The Company reviews the same at each Balance Sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that the Company will pay normal income tax during the specified period.

(xiv) Provisions, Contingent Liabilities and Contingent Assets Provisions are recognised only when the Company has present or legal obligations as a result of past events for which it is probable that an

outflow of economic benefit will be required to settle the transaction and when a reliable estimate of the amount of obligation can be made. Contingent liability is disclosed for (i) possible obligations which will be confirmed only by future events not wholly within the control of the Company or (ii) present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.

SCHEDULE 15

NOTES TO THE ACCOUNTS

1. Secured Loans (Foreign Currency and Rupee Term Loans) (a) The term loans from State Bank of India, Axis Bank and HDFC Bank amounting to Rs. 311,495,432 as at March 31, 2011 (Rs. 479,900,983

as at March 31, 2010), are secured by way of charge on the Company’s Participating Interest in PY-3 and Palej Fields, first charge on the Company’s share of Crude Oil Receivables from PY-3 and Palej Fields and charge on the Debt Service Reserve Account. Also see Note 2 of Schedule 15.

(b) The term loans from Axis Bank amounting to Rs. 275,321,991 as at March 31, 2011 (Rs. 347,276,208 as at March 31, 2010) is secured by way of charge on all movable properties pertaining to PY-1 Gas Project, the Company’s Participating Interest in PY-1 Field and on the PY-1 Trust and Retention Accounts. Also see Note 2 of Schedule 15.

2. Bank Balances – Scheduled Banks (a) Current Accounts with Scheduled Banks include Lien Marked Accounts Rs. 941,993 as at March 31, 2011 (Rs. 1,261,453 as at March 31,

2010). Also see Note 1 of Schedule 15. (b) Deposits with Scheduled Banks include: – Lien Marked Deposits Rs. 60,534,613 as at March 31, 2011 (Rs. 39,298,606 as at March 31, 2010). Also see Note 1 of Schedule 15. – Deposits amounting to Rs. 264,294,120 as at March 31, 2011 (Rs. 227,273,440 as at March 31, 2010) placed as “Site Restoration

Fund” under Section 33ABA of the Income Tax Act, 1961.




54


3. Bank Balances – Non-Scheduled Banks The balance with Non-Scheduled Bank represents the Company’s share in the balance in a foreign currency account with Barclays Bank, London

amounting to Rs. 6,586,423 as at March 31, 2011 (Rs. 24,381,396 as at March 31, 2010) and Banque ENI Belgium (a ENI Group Entity) amounting to Rs. Nil as at March 31, 2011 (Rs. Nil as at March 31, 2010). The maximum amount outstanding at any time during the year in respect of these accounts were Rs. 35,839,383 (Previous Year Rs. 103,143,622) and Rs. Nil (Previous Year Rs. 6,165,000,000) respectively.

4. Purchase and Sale of Investments The details of purchase and sale of investments are as under:

A. 2010 – 2011Amount in Rupees

Name of the FundsPurchases Sales

Units Amount Units Amount

HDFC Cash Management Fund – Savings Plan – Daily Dividend – Reinvestment 84,827,736 902,261,732 82,798,368 880,676,564

HDFC Cash Management Fund – Treasury Advantage Plan – Wholesale – Daily Dividend – Reinvestment 128,288,748 1,286,928,577 121,065,304 1,214,466,602

ICICI Prudential Liquid Super Institutional Plan – Daily – Dividend Reinvestment 1,790,136 179,053,436 1,790,136 179,053,436

ICICI Prudential Floating Rate Plan D – Daily Dividend – Dividend Reinvestment 2,863,462 286,412,041 0 0

ICICI Prudential Flexible Income Plan Premium – Daily Dividend – Reinvestment 1,448,989 153,208,814 1,615,014 170,763,518

Birla Sun Life Cash Plus Fund – Institutional Premium – Daily Dividend – Reinvestment 47,583,352 476,761,398 47,583,352 476,761,398

Birla Sun Life Ultra Short Term Fund – Institutional – Daily Dividend 28,630,123 286,458,692 0 0

Birla Sun Life Savings Fund – Institutional Daily Dividend – Reinvestment 41,064,175 410,920,984 41,064,175 410,920,984

Kotak Liquid (Institutional Premium) – Daily Dividend 19,152,528 234,199,028 19,562,135 239,207,749

Kotak Floater Long Term Fund – Daily Dividend 46,841,297 472,150,901 42,958,906 433,017,182

UTI Liquid Cash Plan Institutional – Daily Income Option – Reinvestment 376,720 384,045,077 376,720 384,045,077

UTI Treasury Advantage Fund – Institutional Plan (Daily Dividend Option) – Reinvestment 502,180 502,287,809 111,976 112,000,000

Kotak Floater Short Term – Daily Dividend 14,841,533 150,139,919 14,841,533 150,139,919

Total 418,210,979 5,724,828,408 373,767,619 4,651,052,429

B. 2009 – 2010Amount in Rupees

Name of the FundsPurchase Sales


HDFC Cash Management Fund – Savings Plan – Daily Dividend – Reinvestment 8,462,165 90,006,971 9,247,103 98,355,892

ICICI Prudential Institutional Liquid Plan – Super Institutional – Daily Dividend 88,602,882 1,349,960,639 88,602,882 1,349,960,639

SCHEDULE 15 — NOTES TO THE ACCOUNTS (Contd.)



55

Amount in Rupees

Name of the FundsPurchase Sales


ICICI Prudential Flexible Income Plan Premium – Daily Dividend 85,490,644 1,448,056,434 85,324,619 1,430,501,730

TATA Liquid Super High Investment Fund – Daily Dividend 225,143 250,926,470 225,143 250,926,470

Birla Sun Life Cash Plus Fund – Institutional Daily Dividend – Reinvestment 52,704,593 528,073,673 52,704,593 528,073,673

Birla Sun Life Savings Fund – Institutional Daily Dividend Reinvestment 10,654,040 106,612,852 10,654,040 106,612,852

Reliance Liquidity – Daily Dividend Reinvestment Option 47,991,480 480,063,569 47,991,480 480,063,569

Reliance Money Manager Fund – Institutional Option – Daily Dividend Plan 491,328 491,886,221 491,328 491,886,221

UTI Liquid Cash Plan Institutional – Daily Income Option – Reinvestment 618,652 630,681,695 717,008 730,950,540

UTI Treasury Advantage Fund – IP – Daily Dividend Option – Reinvestment 711,208 711,359,787 711,208 711,359,787

Kotak Liquid (Institutional Premium) – Daily Dividend 16,115,236 197,058,721 15,705,629 192,050,000

Kotak Floater Long Term – Daily Dividend 18,910,686 190,615,933 18,910,686 190,615,933

Total 330,978,057 6,475,302,965 331,285,719 6,561,357,306

5. Details of dues to Micro, Small and Medium Enterprises as per MSMED Act, 2006

Based on information received by the Company from the suppliers during the year regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), the relevant particulars are furnished below.

Amount in Rupees

Particulars 2010-2011 2009-2010

Principal amount due to suppliers under the MSMED Act as at Year End 218,937 193,025

Interest accrued and due to suppliers under the MSMED Act on the above amount as at Year End 0 0

Payment made to suppliers (other than interest) beyond the appointed day, during the Year 0 0

Interest paid to suppliers under the MSMED Act (other than Section 16) 0 0

Interest paid to suppliers under the MSMED Act (Section 16) 0 0

Interest due and payable to suppliers under the MSMED Act for payments already made 0 0

Interest accrued and remaining unpaid to suppliers under the MSMED Act as at Year End 0 0

All payments due to Micro, Small and Medium enterprises have been made within the prescribed time limit and/or date agreed upon under the contract.


B. 2009 – 2010 (Contd.)



56


6. Managerial Remuneration

(a) Details of Managerial Remuneration to Executive DirectorAmount in Rupees

Particulars 2010-2011 2009-2010

Basic Pay 8,073,000 7,020,000

Allowances 9,851,428 8,564,871

Perquisites and Bonus 2,678,546 2,538,275

Contribution to Provident and Superannuation Funds 2,179,710 1,895,400

Total (See Notes 1 and 2 below) 22,782,684 20,018,546

Notes:

1. In computing the above Managerial Remuneration, perquisites have been valued in terms of actual expenditure incurred by the Company in providing the benefits or notional amount as per Income Tax Rules has been added, where the actual amount of expenditure cannot be ascertained.

2. Further, the remuneration does not include provisions made for gratuity and leave benefits, as they are determined on an actuarial basis for company as a whole. Also see Note 9 of Schedule 15.

(b) Details of Managerial Remuneration Paid to Non-Executive DirectorsAmount in Rupees

Particulars 2010-2011 2009-2010

Sitting Fees 195,000 170,000

Total 195,000 170,000

Note: In addition, 17,680 Employee Stock Options were granted during the year 2010-11, to the Independent Director(s) of the Company for

the year 2009-10 (5,550 Employee Stock Options granted during the year 2009-10 for the year 2008-09), pursuant to LTIP scheme 2005. Also see Note 9 of Schedule 15.

(c) Commission to Non-Executive Directors

Computation of net profit in accordance with Section 198 and 309(5) of the Companies Act, 1956:

Amount in Rupees

Particulars 2010-2011 2009-2010

Profit before Tax as per Profit and Loss Account 1,179,097,486 650,762,146

Add: Depreciation, Depletion and Amortisation of Fixed Assets 1,222,879,767 471,949,918

Profit on Sale of Assets (Net) (960,283) 0

Directors’ Sitting Fees 195,000 170,000

Directors’ Commission 3,000,000 6,000,000

Remuneration to Managing Director/Joint Managing Director (See (a) above) 22,782,684 20,018,546

Less: Depreciation, Depletion and Amortisation of Fixed Assets as per Section 350 of the Companies Act, 1956 1,222,879,767 471,949,918

Adjusted Profit under Section 198 and 309 (5) of the Companies Act, 1956 1,204,114,887 676,950,692

Commission Payable (1% of adjusted Profit) 12,041,149 6,769,507

Commission restricted to 3,000,000 6,000,000




57

7. Foreign Currency Transactions

(i) Expenditure in Foreign Currency (on cash basis)

Amount in Rupees

Particulars 2010-2011 2009-2010

Royalty, Know-how 0 0

Professional and Consultancy Fees 172,879,805 121,088,667

Interest @ 87,068,099 36,445,355

Travelling Expenses 817,414 1,247,246

Others 5,774,382 5,348,436

@ The above excludes interest paid in foreign currency amounting to Rs. Nil (Previous Year Rs. 28,076,323) capitalised as Development Expenditure in accordance with Accounting Standard 16.

(ii) Earnings in Foreign Currency (on cash basis)

Amount in Rupees

Particulars 2010-2011 2009-2010

Interest + 615,347 2,872,155

+ The above excludes interest received in foreign currency amounting to Rs. Nil (Previous Year Rs. 7,815,270) netted off against Borrowing Cost capitalised as Development Expenditure in accordance with Accounting Standard 16 – Borrowing Costs.

(iii) CIF Value of ImportsAmount in Rupees

Particulars 2010-2011 2009-2010

Capital Goods 21,475,099 186,072,230

Components and spare parts 3,797,851 0

8. Dividend Paid in Foreign Currency to Non-Resident Shareholders (on cash basis)

Particulars of Dividend paid to Non-Resident Shareholders (including Foreign Institutional Investors) are as under:

Particulars 2010-2011 2009-2010

Financial Year to which the Dividend relates 2010-11Nil, as the Company

has not declaredany dividend for

2008-09

Number of Non-Resident Shareholders 371

Number of Equity Shares Held by Them 61,805,157

Gross Amount of Dividend in Rupees 30,902,579

9. Long Term Incentive Plan, Scheme 2005

Under the HOEC Limited Employee Stock Option Scheme – 2005 (ESOS Scheme) approved by the Shareholders, and as amended from time to time, the Board had on January 31, 2011 approved grant of 17,680 options (Previous Year 16,828 options approved on January 27, 2010) to eligible Independent Directors at Nil exercise price as part of the Long Term Incentive Plan (LTIP). In terms of the ESOS Scheme, the options would vest at the third anniversary of the end of the financial year for which the grant corresponds to. For the year ended March 31, 2011 an aggregate amount of Rs. 20,000,000 (Previous Year Rs. 16,200,000) has been provided towards performance bonus and stock options as per the LTIP Scheme 2005. During the year, the Company has written back excess provision towards cash and ESOS (deferred bonus) made during the prior years amounting to Rs. 6,527,308 (Previous Year Rs. 8,813,666) based on the approval/ratification of the Board of Directors of the Company.

Method used for Accounting for Share Based Payment Plan:

Under the LTIP Scheme 2005, the eligible employees are granted options in the succeeding year after adoption of the Annual Audited Accounts for the given year. The Company charges the entire amount provided towards performance bonus and stock options to the Profit and Loss




58


Account for the year for which the grant corresponds to. Any upward variation in the market price/acquisition price of the ESOS stocks, as may be applicable, as on the date of Balance Sheet, is charged to the Profit and Loss Account for the period as per LTIP.

Particulars Number of Shares Arising Out of Options

2010-2011 2009-2010

Outstanding at the beginning of the Year 34,441 32,682

Granted during the Year 17,680 16,828

Forfeited/lapsed during the Year 3,011 0

Exercised during the Year 0 15,069

Outstanding at the End of the Year 49,110 34,441

– Vested 0 0

– Yet to Vest 49,110 34,441

Fair Value Methodology:

The fair value of the options granted under LTIP Scheme 2005 approximates the intrinsic value of the options on the date of the grant.

10. Employee Benefits a. Gratuity The Company’s obligation towards the Gratuity Fund is a Defined Benefit Plan. Every employee who has completed five years or more of

service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with Life Insurance Corporation of India in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognised in the Profit and Loss Account and the funded status and amounts recognised in the Balance Sheet.

Details of Actuarial Valuation as at March 31, 2011Amount in Rupees

Particulars 2010-2011 2009-2010Reconciliation of opening and closing balances of the present value of defined benefit obligationsProjected Benefit Obligation as at the beginning of the Year 6,320,300 8,311,130Reversal of Excess Liability 0 (2,876,908)Current Service Cost 1,190,362 1,087,244Interest Cost 521,424 448,323Actuarial (Gain)/Loss (616,151) (649,489)Benefits Paid (763,315) 0Projected Benefit Obligation at the End of the Year 6,652,620 6,320,300Change in fair value of Plan Assets Fair value of Plan Assets as at the beginning of the Year 3,467,487 2,204,015Expected return on Plan Assets 308,713 243,124Employer’s Contribution 688,636 994,717Benefits Paid (763,315) 0Actuarial Gain/(Loss) 8,331 25,631Fair Value of Plan Assets as at the End of the Year 3,709,852 3,467,487Reconciliation of present value of obligation and fair value of Plan AssetsAmount Recognised in the Balance SheetPresent Value of Projected Benefit Obligation at the End of the Year 6,652,620 6,320,300




59

Particulars 2010-2011 2009-2010Fair Value of Plan Assets as at the End of the Year 3,709,852 3,467,487Liability Recognised in the Balance Sheet 2,942,768 2,852,813Gratuity Cost for the Year Current Service Cost 1,190,362 1,087,244Interest Cost 521,424 448,323Expected Return on Plan Assets (308,713) (243,124)Net Actuarial (Gain)/Loss (624,482) (675,120)Net Gratuity Cost Recognised in Profit and Loss Account 778,591 617,323Defined Benefit Obligation 6,652,620 6,320,300Plan Assets 3,709,852 3,467,487Surplus/(Deficit) (2,942,768) (2,852,813)Experience adjustments on Plan Liabilities (616,151) (649,489)Experience adjustments on Plan Assets 8,331 25,631AssumptionsDiscount Rate 8.25% 8.25%Future Salary Increase 9.00% 9.00%Attrition Rate 1% to 5% 1% to 5%Mortality Table LIC (1994-96)

published table LIC (1994-96)

published table Expected Rate of Return on Plan Assets 9.00% 9.00%

The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

2010-11 2009-10 2008-09 2007-08 2006-07Defined benefit Obligations as at the End of the Year (6,652,620) (6,320,300) (8,311,130) (6,696,883) (4,519,852)Plan Assets Value as at the End of Year 3,709,852 3,467,487 2,204,015 1,041,648 1,050,751 Surplus/(Deficit) (2,942,768) (2,852,813) (6,107,115) (5,655,235) (3,469,101)Experience adjustments on Plan Liabilities (616,151) (649,489) 30,916 979,387 (160,498)Experience adjustments on Plan Assets 8,331 25,631 35,621 14,626 9,492

b. Compensated Absences

The key assumptions used in computation of provision for long term compensated absences are as given below:

Discount Rate (% p.a.) 8.25%

Future Salary Increase (% p.a.) 9.00%

Mortality Rate LIC (1994-96) published table

Attrition (% p.a.) 1% to 5%

11. Segmental Reporting

The Company is primarily engaged in a single business segment of “Hydrocarbons and other incidental services”. All the activities of the Company revolve around the main business. Further, the Company does not have any separate geographic segments other than India. Hence, there are no separate reportable segments as per AS-17 “Segmental Reporting”.




60


12. Unincorporated Joint Venture Operations

The Company has entered into Production Sharing Contracts (PSC) and Unincorporated Joint Ventures (UJV) in respect of certain properties with the Government of India and some bodies corporate. Details of these UJVs and participating interest of venture partners are as follows:

Sl. No.

Unincorporated Joint Ventures

Partners Share (%)



Licensed Production Sharing Contracts:

1. PY–1 Hindustan Oil Exploration Company Limited 100.00 100.00

2. CY-OS/90-1 (PY–3) Hardy Exploration & Production (India) Inc. 18.00 18.00

Oil and Natural Gas Corporation Limited 40.00 40.00

Hindustan Oil Exploration Company Limited 21.00 21.00

Tata Petrodyne Limited 21.00 21.00

3. Asjol Hindustan Oil Exploration Company Limited 50.00 50.00

Gujarat State Petroleum Corporation Limited 50.00 50.00

4. North Balol Hindustan Oil Exploration Company Limited 25.00 25.00


Heramec Limited 30.00 30.00

5. CB-ON/7 (Palej) Hindustan Oil Exploration Company Limited 35.00 35.00


Oil and Natural Gas Corporation Limited 30.00 30.006. CB-OS/1 Exploration Area

Oil and Natural Gas Corporation Limited 32.89 32.89Hindustan Oil Exploration Company Limited 57.11 57.11Tata Petrodyne Limited 10.00 10.00Development AreaOil and Natural Gas Corporation Limited 55.26 55.26Hindustan Oil Exploration Company Limited 38.07 38.07 Tata Petrodyne Limited 6.67 6.67

7. GN-ON-90/3(Pranhita Godavari)

Hindustan Oil Exploration Company Limited 75.00 75.00Mafatlal Industries Limited* 25.00 25.00

8. AAP-ON-94/1 Hindustan Oil Exploration Company Limited 40.323 40.323Indian Oil Corporation Limited 43.548 43.548Oil India Limited 16.129 16.129

9. RJ-ONN-2005/1 Hindustan Oil Exploration Company Limited 25.00 25.00Bharat Petro Resources Limited 25.00 25.00Jindal Petroleum Limited** 25.00 25.00IMC Limited 25.00 25.00

10. RJ-ONN-2005/2 Oil India Limited 60.00 60.00Hindustan Oil Exploration Company Limited 20.00 20.00HPCL & Mittal Energy Limited 20.00 20.00

Note:

All the Unincorporated Joint Ventures are for the blocks awarded within the territorial limits of India.

* Mafatlal Industries Limited has defaulted in Cash Call Payment for the Unincorporated Joint Venture and there is an arbitration proceeding in this matter, which is pending as at March 31, 2011.

** Jindal Petroleum Limited has not submitted Bank Guarantee and Performance Guarantee as required under the Production Sharing Contract (PSC) and thus has been declared as “Defaulting Party” by Management Committee as per the provisions of the PSC.




61

13. Details of Oil and Gas Reserves As at March 31, 2011, the internal estimates of the Management of Proved and Probable Reserves on working interest basis for the Company is

as follows:

Opening Balance Addition Deduction Production Closing Balance

Oil MMBOE 9.1 0.9 0 0.3 9.7

Gas MMSCM 6,927.0 0 0 366.7 6,560.3

14. Related Party Disclosures (i) The related parties of the Company as at March 31, 2011 are as follows: (A) Wholly Owned Subsidiary Company: HOEC Bardahl India Limited (B) Promoter Group: 1. ENI UK Holding plc (Wholly Owned Subsidiary of ENI S.p.A, Italy) 2. Burren Shakti Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding plc) 3. Burren Energy India Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding plc) (C) Other Group Entities: 1. ENI Coordination Center S.A., Belgium 2. ENI India Limited, United Kingdom 3. Banque ENI, Belgium

(D) Unincorporated Joint Ventures: As per details given in Note 12 of Schedule 15.

(E) Key Management Personnel: 1. Mr. Luigi Ciarrocchi – Managing Director 2. Mr. Manish Maheshwari – Joint Managing Director

(ii) The nature and volume of transactions of the Company during the year with the above parties were as follows: Amount in Rupees

Particulars Wholly Owned Subsidiary Company

Promoter Group

Other GroupEntities

Unincorporated Joint Ventures’

Partners

Key Management

Personnel

INCOME

– Warehousing Services 7,056,000(7,056,000)

0(0)

0(0)

0(0)

0(0)

EXPENDITURE

Field Operating Expenditure 0(0)

0(0)

39,362,625(16,258,135)

0(0)

0(0)

– Remuneration to Joint Managing Director (See Note 6(a) of Schedule 15)

0(0)

0(0)

0(0)

0(0)

22,782,684(20,018,546)

– Professional Fee 0(0)

0(0)

23,884,733(0)

0(0)

0(0)

– Recovery of Expenses 0(0)

0(0)

0(0)

75,921,519 (37,125,996)

0(0)

– Interest Paid* 0(0)

0(0)

77,136,005(46,695,729)

0(0)

0(0)

– Dividends Paid 0(0)

30,784,567(0)

0(0)

0(0)

0(0)

– Bank Charges 0(0)

0(0)

26,492(48,297)

0(0)

0(0)




62


Particulars Wholly Owned Subsidiary Company

Promoter Group

Other GroupEntities


Partners

Key Management

Personnel

OTHERS

– Warehouse Deposit 6,000,000(6,000,000)

0(0)

0(0)

0(0)

0(0)

LOAN

– Unsecured Loan Taken* 0(0)

0(0)

0(5,697,500,000)

0(0)

0(0)

– Unsecured Loan Repaid* 0(0)

0(0)

390,025,000(0)

0(0)

0(0)

CAPITAL EXPENDITURE

– Exploration Expenditure 0(0)

0(0)

24,992,454(665,798)

0(0)

0(0)

– Development Expenditure 0(0)

0(0)

121,684,535(160,438,827)

0(0)

0(0)

AS AT YEAR END

Amounts Receivable as at Year End 0(0)

0(0)

0(0)

0(0)

0(0)

Loan Outstanding as at Year End* 0(0)

0(0)

5,307,475,000(5,697,500,000)

0(0)

0(0)

Amounts Payable as at Year End 6,000,000(6,000,000)

0(0)

208,534,245(169,875,356)

0(0)

0(0)

* Amount relates to ENI Coordination Center S.A., Belgium. Note: Figures in brackets relate to the Previous Year.

15. Earnings Per Share (EPS)

The basic and diluted Earnings per Equity Share are calculated as stated below:

Particulars 2010-2011 2009-2010

Net Profit after Tax Rs. 801,997,486 Rs. 415,924,594

Weighted Average Numbers of Equity Shares 130,493,289 130,493,289

Basic and Diluted Earnings per Share (EPS) Rs. 6.15 Rs. 3.19

Nominal Value per Share Rs. 10 Rs. 10

Note: Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average

number of equity shares outstanding during the year.

16. Taxation

(i) MAT Credit

Provision for Income Tax for the current year as well as the previous year has been computed based on Minimum Alternate Tax in accordance with Section 115JB of the Income Tax Act, 1961. Taking into consideration the future profitability and the taxable position in the subsequent years, the Company has recognised “MAT Credit Entitlement” to the extent of Rs. 232,000,000 (Previous Year Rs. 108,000,000) during the current year in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternate Tax under Income Tax Act, 1961” issued by the Institute of Chartered Accountants of India.




63

(ii) Deferred Tax Liabilities/Asset (Net)

The net Deferred Tax Liability of Rs. 323,852,081 as at March 31, 2011 (Deferred Tax Asset of Rs. 53,147,919 as at March 31, 2010) comprises the following components:

Amount in Rupees

Particulars As at March 31, 2011


Deferred Tax AssetExploration Expenses 301,077,000 301,210,000Doubtful Advances 5,168,000 5,170,000Employee Related Costs 3,404,000 2,490,000Unabsorbed Business Losses and Depreciation 1,475,979,919 1,050,577,919 Site Restoration 5,014,000 0Sub Total (A) 1,790,642,919 1,359,447,919Deferred Tax LiabilityDepreciation, Depletion and Amortisation of Fixed Assets 2,114,495,000 1,291,930,000Foreign Currency Monetary Item Translation Difference Account 0 830,000Site Restoration 0 (13,540,000)Sub Total (B) 2,114,495,000 1,279,220,000Net Deferred Tax (Liability)/Asset (A – B) (323,852,081) 53,147,919

17. Commitments and Contingencies Amount in Rupees

Particulars As atMarch 31, 2011


(i) Counter Guarantees on account of Bank Guarantees 165,287,440 71,824,538

(ii) Estimated amount of Contracts remaining to be Executed on Capital Account and Not Provided For 77,093,031 119,934,054

(iii) Claims against the Company Not Acknowledged as Debt

– Dispute with Contractors under Arbitration 0 3,245,248

– Income Tax Demands under Appeal 597,823,033 894,400,144

– Dispute with Government of India under Arbitration for GN-ON-90/3 Block 349,341,475 327,033,332

(iv) Service Tax Liability (pertaining to one Unincorporated Joint Venture) 2,139,321 2,139,321

(v) Hire Charges 51,694,208 51,694,208

18. Provision for Site Restoration

In accordance with Accounting Standard 29, the movement in Provision for Site Restoration is as follows. Amount in Rupees

Provision for Site Restoration 2010-2011 2009-2010

Opening Balance 801,505,000 286,112,500

Add : Provision for the Year 0 546,210,000

Effects of Changes in Foreign Exchange Rates (7,072,500) (30,817,500)

Closing Balance 794,432,500 801,505,000

As per the terms of the Production Sharing Contracts, this liability will arise at the time of abandonment of the respective fields.

19. Quantitative and Other Related Disclosures

The Company is not a manufacturing company but holds participating interest in Unincorporated Joint Ventures engaged in prospecting, exploring and producing oil and gas. The information given below as required under items 4-C and 4-D of Part II of Schedule VI to the Companies Act, 1956 represents the Company’s share in the Unincorporated Joint Ventures.




64


(i) Sales Turnover

Description Unit2010-2011 2009-2010

Quantity Value (Rs.) Quantity Value (Rs.)

Crude Oil/CondensateNatural Gas

Bbl.M3

373,991364,707,256

1,466,140,8292,103,800,132

172,922135,863,102

663,628,096794,124,692

Less: Profit Petroleum to Government of India 278,501,942 64,258,545Net 3,291,439,019 1,393,494,243

(ii) Opening and Closing Stock of Goods Produced

Description Unit2010-2011 2009-2010

Quantity Value (Rs.) @ Quantity Value (Rs.) @Opening StockCrude Oil/CondensateNatural Gas

Bbl.M3

27,360256,000

99,517,1541,443,386

19,1750

49,587,4390

Closing StockCrude Oil/Condensate Natural Gas

Bbl.M3

22,252186,493

113,512,1391,053,051

27,360256,000

99,517,1541,443,386

Increase/(Decrease) in Stock of Crude Oil/Condensate* Bbl. (5,108) 13,994,985 8,185 49,929,715Natural Gas* M3 (69,507) (390,335) 256,000 1,443,386

* Excluding adjustment for Profit Petroleum to Government of India. @ Inventory valuation of crude oil, condensate and natural gas is done at estimated Net Realisable Value less estimated selling cost, if any.

(iii) Licensed Capacity, Installed Capacity and Actual Production

Description UnitCapacity Per Annum Actual Production

2010-2011@Actual Production

2009-2010@ Licensed InstalledCrude Oil Bbl. N.A. N.A. 368,936 181,127 Natural Gas M3 N.A. N.A 366,955,275 137,968,552

@ Includes loss/internal consumption/stock adjustment of Crude Oil of 53 Bbl (Previous Year 20 Bbl) and Natural Gas of 2,317,526 M3 (Previous Year 1,849,450 M3).

(iv) Consumption of Stores and Spares

Product 2010-2011 2009-2010Value (Rs.) % Value (Rs.) %

Imported 1,262,644 13% 0 0Indigenous 8,614,606 87% 4,432,921 100%

20. Break up of Foreign Exchange (Gain)/Loss dealt with in the Profit and Loss Account Net Gain on Foreign Exchange includes exchange (gain)/loss as per the following: Amount in Rupees

Particulars 2010-2011 2009-2010Net Exchange Loss/(Gain) on Current Assets and Current Liabilities 1,646,306 30,771,349Net Exchange (Gain)/Loss on Revaluation of Current Assets and Current Liabilities of the Unincorporated Joint Ventures

PY-1 2,125,094 (96,305,010)AAP-ON-94/1 386,398 (383,012)Asjol 0 (9,572)PY-3 681,902 566,678 Amortisation of Foreign Currency Monetary Item Translation Difference Account (Also see Note 22 of Schedule 15)

(1,175,363) 7,655,662

Exchange (Gain) on Foreign Currency Loans (5,571,424) (27,171,361)Total Foreign Exchange (Gain) (1,907,086) (84,875,266)




65

21. Recovery of Expenses

Recovery of expenses represents expenditure incurred by the Company for the UJVs where the Company is the Operator. Such costs are recovered from the respective UJVs as per the terms of the Production Sharing Contract. Recovery of expenses also includes an amount of Rs. 12,728,726 (Previous Year Rs. 57,969,229) recovered as parent company overhead pursuant to the respective Production Sharing Contracts.

22. Accounting Standard 11 – The Effects of Changes in Foreign Exchange RatesAmount in Rupees

Particulars 2010-2011 2009-2010

Exchange Differences capitalised to Fixed Assets (Development Expenditure) during the year 60,418,155 261,532,172

Closing Balance of Foreign Currency Monetary Item Translation Difference Account as at the end of the year to be amortised in subsequent periods 0 2,501,863

Amount of Net Amortisation of Foreign Currency Monetary Item Translation Difference Account charged to the Profit and Loss Account for the year (1,175,363) 7,655,662

23. Impairment As of March 31, 2011, the Company has reviewed the carrying amount of its assets for indications of impairment and based on such review, the

Company has concluded that none of the assets of the Company has suffered impairment loss as at March 31, 2011.

24. Particulars of Unhedged Foreign Currency Exposure The particulars of unhedged Foreign Currency Exposure of the Company, are as under:

Amount in Rupees

Particulars Exposure as at March 31, 2011

Exposure as at March 31, 2010

Secured Loans 370,817,423 491,177,191

Unsecured Loans 5,307,475,000 5,697,500,000

Sundry Debtors 248,180,869 145,421,449

Loans and Advances 0 100,921,368

Sundry Creditors 274,265,091 22,940,879

Bank Account and Deposit 36,888,166 319,240,724

25. Previous Year Figures

Previous Year’s figures have been regrouped wherever necessary to conform to the current year presentation.

The figures of Previous Year were audited by a firm of Chartered Accountants other than S. R. Batliboi & Associates.



For S. R. Batliboi & Associates R. Vasudevan Manish Maheshwari(Firm Registration No. 101049W) Chairman Joint Managing DirectorChartered Accountants

per Subramanian Suresh PartnerMembership No. 83673




66

(I) Registration Details

CIN L11100GJ1996PLC029880

Registration No. 029880

State Code 04

Balance Sheet Date 31.03.2011

(II) Capital raised during the year (Rs. in Thousand)

Public Issue Nil

Rights Issue Nil

Bonus Issue Nil

Private Placement Nil

(III) Position of Mobilisation and Deployment of Funds (Rs. in Thousand)

Total Liabilities 19,302,721

Total Assets 19,302,721

Sources of Funds

Paid-up Capital 1,305,093

Reserves and Surplus 10,437,390

Secured Loans 586,817

Unsecured Loans 5,307,475

Application of Funds

Net Fixed Assets 14,897,188

Investments 1,102,907

Net Current Assets 949,663

Other Assets 1,010,869

Misc. Expenditure Nil

Accumulated Losses Nil

(IV) Performance of the Company (Rs. in Thousand)

Turnover 3,372,749

Total Expenditure 2,193,651

Profit Before Tax 1,179,097

Profit After Tax 801,997

Earning Per Share in Rs. 6.15

(V) Generic Names of Three Principal Products/Services of the Company (as per monetary terms)

Item Code No. (ITC Code) 27090000

Product Description CRUDE OIL

Item Code No. (ITC Code) 27112100

Product Description NATURAL GAS

Balance Sheet Abstract and Company‘s General Business Profile


67

To The BoARD of DIReCToRS of hInDuSTAn oIl exploRATIon CompAny lImITeD

We have audited the attached Consolidated Balance Sheet of Hindustan Oil Exploration Company Limited (‘the Company’), and its subsidiary HOEC Bardahl India Limited as at March 31, 2011, and also the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company’s management and have been prepared by the management on the basis of separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The attached financial statements and other financial information include Company’s share of net fixed assets, net current assets, expenses and cash flows aggregating to INR 588,294,910, INR (8,535,030), INR 297,162,129 and INR (19,049,219) respectively as at March 31, 2011 in respect of one of its unincorporated joint venture (‘UJV’) not operated by the Company, the accounts of which have been audited by the auditors of the respective UJV and relied upon by us.

The attached financial statements and other financial information include Company’s share of total exploration/development work in progress, net current assets, expenses and cash flows aggregating to INR 200,452,559, INR 11,021,398, INR Nil and

INR (13,163) respectively as at March 31, 2011 in respect of two of its UJV’s not operated by the Company, the accounts of which have not been audited by the auditors of the respective UJV’s. The financial statements and other financial information have been incorporated based on un-audited financial statements as provided by the Operator of respective UJV’s and relied upon by us.

We report that the consolidated financial statements have been prepared by the Company’s management in accordance with the requirements of Accounting Standards (AS) 21- ‘Consolidated financial statements’ notified pursuant to the Companies (Accounting Standards) Rules, 2006, (as amended).

Based on our audit and on consideration of reports of other auditors on separate financial statements and on the other financial information of the components, and to the best of our information and according to the explanations given to us, we are of the opinion that the attached consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) in the case of the consolidated balance sheet, of the state of affairs of the Company and its subsidiary as at March 31, 2011;

(b) in the case of the consolidated profit and loss account, of the profit for the year ended on that date; and

(c) in the case of the consolidated cash flow statement, of the cash flows for the year ended on that date.

for S.R. BATlIBoI & ASSoCIATeSFirm registration number: 101049W


per Subramanian SureshPlace : New Delhi PartnerDate : May 9, 2011 Membership No.: 83673

AUDITORS’ REPORT


68


Please check thoroughly. Vakils will not be responsible for errors not noted on this proof.

Schedule As at March 31, 2011


SOURCES OF FUNDS SHAREHOLDERS’ FUNDSShare Capital 1 1,305,093,005 1,305,093,005 Reserves and Surplus 2 10,513,172,510 9,773,899,000 LOAN FUNDSSecured Loans 3 586,817,423 827,177,191 Unsecured Loans 4 5,307,475,000 5,697,500,000 DEFERRED TAX LIABILITY (NET)(See Note 13(ii) of Schedule 17)

322,533,226 0

18,035,091,164 17,603,669,196

APPLICATION OF FUNDSFIXED ASSETS 5 AGross Block 17,827,670,409 17,760,384,794 Less: Depreciation, Depletion and

Amortisation 2,928,183,167 1,710,493,997 Net Block 14,899,487,242 16,049,890,797 EXPLORATION/DEVELOPMENT WORK IN PROGRESS

5 B 1,010,869,277 654,301,550

INVESTMENTS 6 1,151,688,771 69,022,488 FOREIGN CURRENCY MONETARY ITEM TRANSLATION DIFFERENCE ACCOUNT

0 2,501,863

(See Note 17 of Schedule 17)DEFERRED TAX ASSET (NET) (See Note 13(ii) of Schedule 17)

0 54,510,902

CURRENT ASSETS, LOANS AND ADVANCES

7

A. Inventories 460,821,543 450,062,404 B. Sundry Debtors 495,524,674 427,692,979 C. Cash and Bank Balances 472,087,595 801,117,836 D. Other Current Assets 1,900,257 2,182,492 E. Loans and Advances 917,018,582 600,732,183

2,347,352,651 2,281,787,894 Less: CURRENT LIABILITIES AND

PROVISIONS8

A. Current Liabilities 571,382,960 698,789,111 B. Provisions 802,923,817 809,557,187

1,374,306,777 1,508,346,298 NET CURRENT ASSETS 973,045,874 773,441,596

18,035,091,164 17,603,669,196 Significant Accounting Policies 16Notes to the Consolidated Accounts 17Schedules referred to above form an integral part of the Consolidated Balance Sheet.

CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2011(All amounts are in Indian rupees unless otherwise stated)


for S. R. Batliboi & Associates R. Vasudevan Manish Maheshwari(Firm Registration No. 101049W) Chairman Joint Managing DirectorChartered Accountants







69

Schedule Year ended March 31, 2011


INCOME

Sales 9 3,457,574,132 1,557,188,871 (Decrease)/Increase in Stock of Crude Oil, Condensate and Natural Gas 10 (13,895,394) 49,718,432 Other Income 11 92,165,429 143,820,684

3,535,844,167 1,750,727,987

EXPENDITURE AND CHARGES

Operating and Administrative Expenditure 12 869,292,810 406,144,976 Cost of Goods Sold 13 72,941,525 67,315,114 Depreciation, Depletion and Amortisation of Fixed Assets 5A 1,223,288,660 472,448,240 Marketing and Selling Expenses 14 39,475,888 36,992,125 Interest and Finance Charges 15 124,073,942 80,656,524

2,329,072,825 1,063,556,979

PROFIT BEFORE TAX 1,206,771,342 687,171,008 Provision for Current Income Tax [Including Rs. 6,480,406 (Previous Year Rs. 58,598 for Prior Years)] 246,270,406 119,658,598 Provision for Deferred Tax (See Note 13(ii) of Schedule 17) 377,044,128 231,380,075 Provision for Wealth Tax 100,000 200,000 Provision for Fringe Benefit Tax [Includes Rs. Nil (Previous Year writeback of Rs. 23,683) related to prior period] 0 (23,683)MAT Credit Entitlement (232,000,000) (104,362,448)

PROFIT AFTER TAX 815,356,808 440,318,466 Profit Brought Forward 1,930,377,527 1,490,059,061

PROFIT AVAILABLE FOR APPROPRIATION 2,745,734,335 1,930,377,527 Interim Dividend 65,246,645 0Dividend Tax 10,836,653 0Balance Carried to Balance Sheet 2,669,651,037 1,930,377,527 2,745,734,335 1,930,377,527

Earning per Share of Rs. 10 Face Value (Basic and Diluted) (See Note 12 of Schedule 17)

Rs. 6.25 Rs. 3.37

Significant Accounting Policies 16Notes to the Consolidated Accounts 17Schedules referred to above form an integral part of the Consolidated Profit and Loss Account.

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2011(All amounts are in Indian rupees unless otherwise stated)







70



Particulars Year ended March 31, 2011


A. CASH FLOW FROM OPERATING ACTIVITIES

Net Profit Before Tax 1,206,771,342 687,171,008

Adjustments for:

Compensated Absences 545,723 (736,759)

Depreciation, Depletion and Amortisation 1,223,288,660 472,448,240

Dividend/Interest Income (76,411,569) (44,004,187)

Provisions and Write Offs 73,582 22,499

(Profit)/Loss on Sale of/Discarded Assets (Net) (830,872) 41,925

Excess Liabilities/Provisions Written Back (9,968,767) (13,015,269)

Amortisation of Foreign Currency Monetary Item Translation Difference Account 2,501,862 7,655,662

Unrealized Exchange (Gain)/Loss* (1,809,014) 14,312,711

Interest and Finance Charges 124,073,942 80,656,524

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 2,468,234,889 1,204,552,354

Adjustments for:

Sundry Debtors (66,096,263) (210,616,064)

Loans and Advances (including Site Restoration Deposits) 55,874,470 99,359,675

Inventories (10,759,139) 233,738,075

Current Liabilities and Provisions (117,296,582) (3,003,563,770)

CASH FROM/(USED IN) OPERATIONS 2,329,957,375 (1,676,529,730)

Taxes Paid (Net) (444,460,503) (196,465,163)

NET CASH FROM/(USED IN) OPERATING ACTIVITIES 1,885,496,872 (1,872,994,893)

B. CASH FLOW FROM INVESTING ACTIVITIESPurchase of Fixed Assets (14,027,351) (5,596,641)

Proceeds from Sale of Fixed Assets 1,858,853 17,272

Development Expenditure (149,630,612) (5,544,516,948)

Exploration Expenditure (334,313,504) (70,477,412)

Proceeds from Sale of Current Investments 78 0

Dividend/Interest Received 76,693,804 45,417,780

NET CASH USED IN INVESTING ACTIVITIES (419,418,732) (5,575,155,949)

C. CASH FLOW FROM FINANCING ACTIVITIESSecured Loans Repaid (237,262,541) (410,534,837)

Unsecured Loans Repaid (332,704,071) 0

Unsecured Loans Taken 0 5,898,925,184

Interest and Finance Charges Paid (124,073,942) (89,310,699)

Dividend Paid (including Dividend Tax) (76,083,298) 0

NET CASH (USED IN)/FROM FINANCING ACTIVITIES (770,123,852) 5,399,079,648

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C) 695,954,288 (2,049,071,194)Cash, Cash Equivalents:

Opening Balance 596,645,135 2,645,716,329 Closing Balance 1,292,599,423 596,645,135

695,954,288 (2,049,071,194)Components of Cash and Cash EquivalentsCash and Bank Balance as per Schedule 7* 472,087,595 801,117,836 Current Investments – Units of Liquid and Liquid Plus Schemes of Mutual Funds 1,151,639,806 68,973,445 Adjustment for Unpaid Dividend Account and Share Application Money Account (5,357,252) (5,612,647)Adjustment for Site Restoration Deposit (See Note 3(b) of Schedule 17) (264,294,120) (227,273,440)Adjustment for Lien Marked Deposits/Accounts (See Note 3(b) of Schedule 17) (61,476,606) (40,560,059)Total Cash and Cash Equivalents as at Year End 1,292,599,423 596,645,135

*Includes effect of exchange loss of Rs. 341,711 (Previous Year: Rs. 16,615,954) on translation of foreign currency cash and cash equivalents.

Schedules 1 to 17 form an integral part of the Consolidated Accounts.

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2011(All amounts are in Indian rupees unless otherwise stated)









71



SCHEDULE 1

SHARE CAPITAL

AUTHORISED

200,000,000 Equity Shares of Rs. 10 each 2,000,000,000 2,000,000,000

ISSUED130,563,363 Equity Shares of Rs. 10 each 1,305,633,630 1,305,633,630

SUBSCRIBED AND FULLY PAID-UP

130,493,289 Equity Shares of Rs. 10 each fully paid 1,304,932,890 1,304,932,890

Add: Amount Paid-up on Shares Forfeited 160,115 160,115

1,305,093,005 1,305,093,005

SCHEDULE 2

RESERVES AND SURPLUS

Securities Premium Account 7,841,521,473 7,841,521,473

General Reserve 2,000,000 2,000,000

Balance in Profit and Loss Account 2,669,651,037 1,930,377,527

10,513,172,510 9,773,899,000

SCHEDULE 3

SECURED LOANS


Loans from Banks

Foreign Currency Term Loan 370,817,423 491,177,191

Rupee Term Loans 216,000,000 336,000,000

586,817,423 827,177,191

SCHEDULE 4

UNSECURED LOANS

Other Loan

Loan from ENI Coordination Center S.A., Belgium 5,307,475,000 5,697,500,000

5,307,475,000 5,697,500,000

Schedules Forming Part of the Consolidated Balance Sheet as at March 31, 2011(All amounts are in Indian rupees unless otherwise stated)


72



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73



SCHEDULE 6INVESTMENTS (FULLY PAID) – At CostLONG TERMUNQUOTED (NON TRADE)100,000 (Previous Year 100,000) Equity Shares of Rs. 10 each of Gujarat Securities Limited 1,000,000 1,000,000 CURRENTQUOTED (NON TRADE)

318 (Previous Year 318) Equity Shares of Rs. 10 each of Reliance Industries Limited 25,975 25,975

318 (Previous Year 318) Equity Shares of Rs. 5 each of Reliance Communication Ventures Limited 19,332 19,332

Nil (Previous Year 318) Equity Shares of Rs. 5 each of Reliance Natural Resources Limited 0 350

23 (Previous Year 23) Equity Shares of Rs. 10 each of Reliance Energy Limited 3,219 3,219 15 (Previous Year 15) Equity Shares of Rs. 10 each of Reliance Capital Limited 166 166 79 (Previous Year Nil) Equity Shares of Rs. 10 each of Reliance Power Limited 272 0

UNQUOTED (NON TRADE)UNITS OF LIQUID/LIQUID PLUS SCHEMES OF MUTUAL FUNDSUNITS OF MUTUAL FUNDS 1,151,639,806 68,973,445

1,152,688,770 70,022,487

Less: Provision for Diminution in Value of Investments (Gujarat Securities Limited) 999,999 999,999

1,151,688,771 69,022,488

Aggregate Cost of Quoted Investments 48,964 49,042

Market Value of Quoted Investments 402,764 445,773

Aggregate Cost of Unquoted Investments 1,152,639,806 69,973,445

SCHEDULE 7CURRENT ASSETS, LOANS AND ADVANCES

(A) INVENTORIESCrude Oil, Condensate and Natural Gas 114,565,190 100,960,540 Stores, Spares, Capital Stock and Drilling Tangibles 325,863,149 331,524,021 Goods in transit (Raw material) 5,495,577 1,809,269 Raw Material 6,423,558 6,101,698 Finished Goods 6,566,542 8,113,772 Packing Material 1,907,527 1,553,104

460,821,543 450,062,404 (B) SUNDRY DEBTORS

Outstanding for a Period More Than Six MonthsConsidered Good 501,558 196,437 Considered Doubtful 1,720,478 1,646,896

OthersConsidered Good 495,023,116 427,496,542

497,245,152 429,339,875 Less: Provision for Doubtful Debts 1,720,478 1,646,896

495,524,674 427,692,979



74





SCHEDULE 7 (Contd.)

CURRENT ASSETS, LOANS AND ADVANCES (Contd.)

(C) CASH AND BANK BALANCES

Cash on Hand 2,795 18,588

Balances with Scheduled Banks

Current Accounts (See Note 3(a) of Schedule 17) 74,142,806 26,630,206

Unclaimed/Unpaid Dividend Accounts 4,919,031 5,172,671

Unclaimed/Unpaid Share Application Money 438,221 439,976

Deposit Accounts (See Notes 3(b) of Schedule 17) 385,998,319 744,474,999

Balances with Non-scheduled Banks

Current Account 6,586,423 24,381,396

472,087,595 801,117,836

(D) OTHER CURRENT ASSETS

Interest Accrued on Deposits 1,900,257 2,182,492

1,900,257 2,182,492

(E) LOANS AND ADVANCES (See Note 1 below)

Advances Recoverable in Cash or in Kind or for Value to be Received (See Note 2 below)

155,423,205 269,554,230

Cenvat/Service Tax Input Credit 1,401,802 1,082,473

MAT Credit Entitlement (See Note 13(i) of Schedule 17) 367,362,448 135,362,448

Advance Income Tax [Net of Provision for Taxation of Rs. 1,218,320,358 (Previous Year Rs. 971,812,759)]

407,329,835 209,220,605

Advance Fringe Benefit Tax [Net of Provision for Taxation of Rs. 11,442,722 (Previous Year Rs. 11,453,857)]

1,058,148 1,069,283

932,575,438 616,289,039

Less: Provision for Doubtful Advances (See Note 1 below) 15,556,856 15,556,856

917,018,582 600,732,183

TOTAL (A+B+C+D+E) 2,347,352,651 2,281,787,894

Notes:

1. Of the above:

Unsecured, Considered Good 917,018,582 600,732,183

Unsecured, Considered Doubtful 15,556,856 15,556,856

932,575,438 616,289,039

2. Advances Recoverable in Cash or in Kind or for Value to be Received includes unamortised Borrowing Cost of Rs. 10,941,385 (Previous Year Rs. 15,413,163)





75



SCHEDULE 8

CURRENT LIABILITIES AND PROVISIONS

(A) CURRENT LIABILITIES

Sundry Creditors

– Outstanding Dues to Micro Enterprises and Small Enterprises 652,810 685,958 – Outstanding Dues to Creditors other than Micro Enterprises and Small

Enterprises 517,119,344 615,038,592 Unclaimed/Unpaid Dividend (See Note 1 below) 4,919,031 5,172,671 Unclaimed/Unpaid Share Application Money (See Note 1 below) 438,221 439,976 Other Liabilities 48,253,554 77,451,914 571,382,960 698,789,111

(B) PROVISIONS Provision for Compensated Absences 4,623,898 4,078,175 Provision for Gratuity 3,421,347 3,535,938 Provision for Site Restoration (Refer Note 15 of Schedule 17) 794,432,500 801,505,000

Provision for Taxation – Wealth Tax [Net of Advance Tax of Rs. 841,668 (Previous Year Rs. 749,666)] 446,072 438,074

802,923,817 809,557,187

TOTAL (A) + (B) 1,374,306,777 1,508,346,298 Note:1. There are no amounts due and outstanding, to be credited to the Investor Education

and Protection Fund.



SCHEDULE 9SALESSale of Crude Oil, Condensate and Natural Gas 3,569,940,961 1,457,752,788 Less: Profit Petroleum to Government of India 278,501,942 64,258,545

3,291,439,019 1,393,494,243 Gross Sale of Oil Additives 184,395,016 178,067,628 Less: Excise Duty 18,259,903 14,373,000 Net Sale of Oil Additives 166,135,113 163,694,628

3,457,574,132 1,557,188,871

SCHEDULE 10(DECREASE)/INCREASE IN STOCK OF CRUDE OIL, CONDENSATE AND NATURAL GASIncrease in Gross Stock of Crude Oil, Condensate and Natural Gas 13,604,650 51,373,101 Less: Profit Petroleum to Government of India 27,500,044 1,654,669

(13,895,394) 49,718,432


Schedules Forming Part of the Consolidated Profit and Loss Account for the Year Ended March 31, 2011 (All amounts are in Indian rupees unless otherwise stated)


76





SCHEDULE 11

OTHER INCOME

Interest Income (Gross) on Bank Deposits[Tax Deducted at Source Rs. 975,694 (Previous Year Rs. 1,307,640)]

23,722,179 22,264,794

Profit on Sale of Assets 960,283 0Dividend from Long Term – Trade Investments 531 4,647 Dividend from Current – Non Trade Investments 52,688,859 21,734,746 Gain on Foreign Exchange Fluctuation (Net) 2,272,614 85,568,678 Provisions for Earlier Years Written Back 10,085,131 13,015,269 Miscellaneous Income 2,435,832 1,232,550

92,165,429 143,820,684

SCHEDULE 12

OPERATING AND ADMINISTRATIVE EXPENDITURE

A. OPERATING EXPENDITURE

Hire Charges 207,699,344 131,407,079 Insurance 34,063,686 14,923,378 Fuel, Water and Others 10,326,998 6,643,891 Plant – Repairs & Maintenance 19,588,286 9,007,131 Manpower Costs & Overheads 132,524,368 51,659,036 Transportation and Logistics 154,581,370 83,107,029 Consumables 1,384,027 277,314 Royalty, Cess & Other Duties 202,321,065 75,867,293 Other Production Expenses 28,438,116 18,020,388

790,927,260 390,912,539

B. ADMINISTRATIVE EXPENDITURE

(a) STAFF EXPENSES Salaries, Allowances and Bonus (See Notes 5(a) & 7(b) of Schedule 17) 127,806,684 100,469,432 Contribution to Provident and Other Funds (See Note 7(a) of Schedule 17) 11,459,679 9,969,034 Welfare Expenses 4,659,511 4,072,253

143,925,874 114,510,719

(b) OTHER EXPENSES Office and Guest House Rent 14,762,311 11,420,565 Electricity 2,194,105 2,030,415 Rates and Taxes 516,265 731,981 Repairs and Maintenance – Others 11,697,119 12,105,545 General Office Expenses 1,180,925 545,820 Travelling and Conveyance 9,260,000 5,112,562 Communication Expenses 4,925,454 3,661,012 Printing and Stationery 3,797,345 2,505,362 Legal and Professional Expenses (See note below) 48,401,958 34,455,677 Insurance 353,256 215,929 Directors' Sitting Fees and Commission (See Note 5(b) of Schedule 17) 3,195,000 6,170,000





77




(b) OTHER EXPENSES (Contd.) Auditors' Remuneration (See Note below) As Statutory Auditors 1,945,000 1,475,000 For Tax Audit 125,000 170,000 For Other Matters 60,200 425,400 Reimbursement of Expenses 92,344 108,763 Service Tax 13,905 0

2,236,449 2,179,163 Miscellaneous Expenses 6,941,396 8,146,531 Loss on sale/discard of assets 129,411 41,925

109,590,994 89,322,487 (c) TOTAL (a+b) 253,516,868 203,833,206 (d) LESS : RECOVERY OF EXPENSES 175,151,318 188,600,769 TOTAL ADMINISTRATIVE EXPENDITURE (c-d) 78,365,550 15,232,437

TOTAL OPERATING AND ADMINISTRATIVE EXPENDITURE (A+B) 869,292,810 406,144,976

Note:

Legal and Professional Expenses for the current year includes and Auditors’ Remuneration excludes Rs. 750,000 (Previous Year Rs. 1,400,000) (Excluding Service Tax) paid/payable towards tax matters to a firm in which some partners of the erstwhile audit firm were partners.

Auditors’ Remuneration for the current year includes Rs. 244,236 (Excluding Service Tax) paid to erstwhile audit firm.

Auditors’ Remuneration excludes Rs. 202,831 (Previous Year 214,225) paid/payable towards service tax for which service tax input credit has been availed.

SCHEDULE 13

COST OF GOODS SOLD

Materials Packed & UnpackedOpening Stock 14,215,470 12,991,141 Add: Purchases 50,895,073 49,953,474

65,110,543 62,944,615 Less: Closing Stock 12,990,100 14,215,470 Less: Cost of Samples & Replacements 496,598 500,616

51,623,845 48,228,529 Packing MaterialsOpening Stock 1,553,104 1,407,641 Add: Purchases 15,926,609 13,381,254

17,479,713 14,788,895 Less: Closing Stock 1,907,527 1,553,104

15,572,186 13,235,791 Repacking Expenses 5,445,006 4,319,111 (Decrease)/Increase in Excise Duty on finished goods (427,208) 844,032 Municipal Cess Tax 727,696 687,651

72,941,525 67,315,114


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SCHEDULE 14

MARKETING AND SELLING EXPENSES

Incentives 6,036,568 6,440,248 Product Promotion Expenses 16,396,921 12,288,814 Rebates and Discounts 11,452,825 12,502,496 Miscellaneous Expenses 5,589,574 5,760,567

39,475,888 36,992,125

SCHEDULE 15

INTEREST AND FINANCE CHARGES

Interest on Fixed Term Loans 117,763,626 75,943,045 Bank Charges and Commission 1,730,125 1,199,481 Other Finance Charges 4,580,191 3,513,998

124,073,942 80,656,524

Schedules Forming Part of the Consolidated Profit and Loss Account for the Year Ended March 31, 2011(All amounts are in Indian rupees unless otherwise stated)


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Schedules Forming Part of the Consolidated Accounts for the Year Ended March 31, 2011

SCHEDULE 16

SIGNIFICANT ACCOUNTING POLICIES

1. Background Hindustan Oil Exploration Company Limited (‘the Company’) was incorporated in India on September 22, 1983 under the provisions of the

Companies Act, 1956 and is listed on the National Stock Exchange (‘NSE’) and Bombay Stock Exchange (‘BSE’). The Company is engaged in the exploration, development and production of crude oil and natural gas in India, both onshore and offshore.

The Company is participant in various Oil and Gas blocks/fields (which are in the nature of jointly controlled assets) granted by the Government of India through Production Sharing Contracts (‘PSC’) entered into between the Company and Government of India and other venture partners. The Company has seven onshore assets of which three are located in Cambay basin in the state of Gujarat, one in Assam Arakan basin in the state of Assam, two in Jaisalmer basin in the state of Rajasthan and one in Pranhita Godavari basin in the state of Andhra Pradesh. The Company has three offshore assets of which two assets are located in the Cauvery basin on the east coast of India, and one in Gulf of Cambay on the west coast of India. Details of Company’s participating interest are fully discussed in Note 9 to Schedule 17.

The Company has one subsidiary as at the year end:

HOEC Bardahl India Limited (HBIL) – A wholly owned subsidiary of the Company incorporated on November 24, 1988 in the state of Gujarat. HBIL is engaged in the business of marketing “Bardahl” brand of auto additives from U.S.A and is the sole authorised distributor for Bardahl products in India, Nepal and Sri Lanka.

The Company, along with HBIL, shall hereinafter, be collectively referred to as ‘the Group’.

2. (I) Basis of Preparation The financial statements have been prepared to comply in all material respects with the Accounting Standards notified by Companies

(Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of the Companies Act, 1956. The financial statements have been prepared under the historical cost convention on an accrual basis. The accounting policies have been consistently applied by the Group and are consistent with those used in the previous year. The financial statements of the Group reflect its share of assets, liabilities, income and expenditure of the Unincorporated Joint Ventures which are accounted on the basis of available information in the audited/unaudited financial statements of the Unincorporated Joint Ventures on line by line basis with similar items in the Group’s accounts to the extent of the participating interest of the Group as per the various “Production Sharing Contracts”. The financial statements of the Unincorporated Joint Ventures are prepared by the respective Operators in accordance with the requirements prescribed by the respective Production Sharing Contracts of the Unincorporated Joint Ventures. Hence, in respect of these Unincorporated Joint Ventures, certain disclosures required under the Accounting Standards notified by Companies (Accounting Standards) Rules, 2006, (as amended), other pronouncements of The Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956 have been made in the financial statements of the Group based on audited/unaudited financial statement of the Unincorporated Joint Venture.

(II) Principles of Consolidation

(a) The Consolidated Financial Statements (‘CFS’) of the Group have been prepared based on a line-by-line consolidation of the Balance Sheet as at March 31, 2011 and statement of profit and loss and cash flows of the Group for the year ended March 31, 2011.

(b) The financial statements of the Subsidiary considered for the purpose of consolidation are drawn for the same reporting period as that of the Company i.e. year ended March 31, 2011.

(c) The CFS have been prepared using uniform accounting policies, except as stated otherwise, for similar transactions and are presented to the extent possible, in the same manner as the Company’s separate financial statements.

(d) All material inter-company transactions and balances between the entities included in the CFS have been eliminated on consolidation.

3. Use of Estimates The preparation of the financial statements requires the Management to make estimates and assumptions considered in the reported amounts

of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period like depletion of Producing Properties, estimate of Site Restoration Liability, expensing of the estimated Site Restoration Liability, provision for employee benefits, useful lives of fixed assets, provision for doubtful advances, provision for tax, recognition of MAT Credit, recognition of deferred tax asset etc. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results may vary from these estimates. Any revisions to accounting estimates are recognised prospectively.

4. Fixed Assets and Exploration and Development Costs Fixed Assets includes Fixed Assets and Producing Properties. Fixed assets are stated at cost less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable

cost of bringing the asset to its working condition for its intended use. Borrowing costs relating to acquisition of fixed assets which take a substantial period of time to get ready for its intended use are also included to the extent they relate to the period till such assets are ready to be put to use.


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The Company generally follows the “Successful Efforts Method” of accounting for its exploration and production activities as explained below:

(i) Cost of exploratory wells, including survey costs, is expensed in the year when the well is determined to be dry/abandoned or is transferred to the Producing properties on attainment of commercial production.

(ii) Cost of all appraisal programmes related to a Discovery are initially capitalised as “Exploration Expenditure”. If a Discovery is determined to be commercial pursuant to the appraisal programme, all appraisal costs, including the cost of unsuccessful appraisal wells, if any, are capitalised on attainment of commercial production. If at the end of the appraisal programme, the Discovery is relinquished, then all appraisal costs related to the Discovery are charged to the Profit and Loss Account.

(iii) Cost of temporary occupation of land, successful exploratory wells, appraisal wells, development wells and all related development costs, including depreciation on support equipment and facilities, are considered as development expenditure. These expenses are capitalised as Producing Properties on attainment of commercial production.

(iv) Producing Properties, including the cost incurred on dry/abandoned wells in development areas, are depleted using “Unit of Production’’ method based on estimated proved developed reserves. Any changes in Reserves and/or Cost are dealt with prospectively from the beginning of the year of such change. Hydrocarbon reserves are estimated and/or approved by the Management Committees of the Unincorporated Joint Ventures, which follow the International Reservoir Engineering Principles.

(v) If the Company/Unincorporated Joint Venture were to relinquish a block or part thereof, the accumulated acquisition and exploration costs carried in the books related to the block or part thereof, as the case may be, are written off as a charge to the Profit and Loss Account in the year of relinquishment.

Explanatory Note 1. All exploration costs including acquisition of geological and geophysical seismic information, license, depreciation on support equipment and

facilities and acquisition costs are initially capitalized as “Exploration Expenditure”, until such time as either the exploration well(s) in the first drilling campaign is determined to be successful, at which point the costs are transferred to “Producing Properties”, or it is unsuccessful in which case such costs are written off consistent with para 2 below.

2. Exploration costs associated with drilling, testing and equipping exploratory well(s) are initially capitalized as “Exploration Expenditure” and retained in exploration expenditure-work-in-progress so long as:

(a) such well has found potential commercial reserves; or

(b) such well test result is inconclusive and is subject to further exploration or appraisal activity like acquisition of seismic, or re-entry of such well, or drilling of additional exploratory/step out well in the area of interest, such activity to be carried out no later than 2 years from the date of completion of such well testing

— until such time as such costs are transferred to “Producing Properties” on attainment of commercial production;

or

— else charged to the Profit and Loss Account. Management makes quarterly assessment of the amounts included in “Exploration Expenditure-work-in-progress” to determine whether

capitalization is appropriate and can continue. Exploration well(s) capitalized beyond 2 years are subject to additional judgment as to whether facts and circumstances have changed and therefore the conditions described in 2(a) and (b) no longer apply.

5. Site Restoration Estimated future liability relating to dismantling and abandoning Producing well sites and facilities is recognised when the installation of the

production facilities is completed based on the estimated future expenditure determined by the Management in accordance with the local conditions and requirements. The corresponding amount is added to the cost of the Producing Property and is expensed in proportion to the production for the year and the remaining estimated proved reserves of hydrocarbons based on latest technical assessment available with the Company. Any change in the value of the estimated liability is reflected as an adjustment to the provision and the corresponding Producing Property.

6. Impairment The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors.

An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital.

After impairment, depreciation/depletion is provided in subsequent periods on the revised carrying amount of the asset over its remaining useful life.

A previously recognised impairment loss is increased or reversed depending on changes in circumstances. However the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.




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7. Depreciation (i) Depreciation is provided on the “Written Down Value’’ method at the rates specified in Schedule XIV of the Companies Act, 1956 or as

per the estimated useful lives of the assets, whichever is higher.

(ii) Improvements to Leasehold premises are amortised over the remaining primary lease period.

(iii) Computer software is amortised over the license period or 10 years, whichever is lower.

(iv) Assets individually costing less than or equal to Rs. 5,000 are fully depreciated in the year of acquisition.

8. Investments Investments are capitalised at cost plus brokerage and stamp charges. Investments that are readily realisable and intended to be held for not more

than a year are classified as current investments. All other investments are classified as long-term investments. Current investments are valued at lower of cost and fair value determined on an individual investment basis. Long term investments are valued at cost. However, provision for diminution in value is made to recognise a decline other than temporary in the value of the investments.

9. Inventories (a) Closing stock of crude oil, condensate and natural gas in saleable condition is valued at estimated Net Realisable Value. Estimated Net

Realisable Value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale.

(b) Stores, spares, capital stock and drilling tangibles are valued at cost on first in first out (FIFO)/weighted average basis, as applicable or estimated Net Realisable Value, whichever is lower.

(c) Inventory of Oil additives are valued at lower of Cost or Net Realisable Value. Cost is identified on a specific identification basis. Cost of unpacked materials includes freight, customs duty, insurance, clearing charges and is net of excise duty. Cost of packed materials includes materials and repacking cost and excise duty wherever applicable. Obsolescence of inventory is determined on the material consumption pattern/specific review and provisions made.

10. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably

measured.

(i) Revenue from the sale of crude oil, condensate and natural gas, net of Government’s share of Profit Petroleum (calculated as per the provisions of the respective Production Sharing Contracts), where applicable, and Value Added Tax, is recognised on transfer of custody.

(ii) Service Income is recognised on accrual basis as per the contractual terms and is net of Service Tax.

(iii) Interest Revenue is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.

(iv) Dividend Income is recognised when the right to receive the dividend is unconditional.

(v) Sales of Oil Additives are recognised on shipment or dispatch to customers. Such sales are stated exclusive of Value Added Tax, Central Sales Tax and are net of sales return and trade discount. Excise duty deducted from gross turnover (gross) is the amount that is included in the amount of gross turnover.

(vi) Delayed Payment charges, retrospective revision in prices, interest on delayed payments and interest on income tax refunds are recognised as and when there is no uncertainty in the determination/receipt of the amount, on grounds of prudence.

11. Employee Benefits

(a) Defined Contribution Plan (i) Provident Fund: Contributions towards employees’ provident fund are made to the Employees Provident Fund Scheme in accordance

with the statutory provisions. Contributions towards Employees’ Provident Fund are recognized as an expense in the year incurred. There are no obligations other than the contribution payable to the respective fund.

(ii) Superannuation Fund: The Company contributes a sum equivalent to 15% of eligible Employees basic salary to a Superannuation Fund administered by trustees. The Company has no liability for future Superannuation Fund benefits other than its annual contribution and recognizes such contributions as an expense in the year of incurrence.

(b) Defined Benefit Plan The Company makes annual contribution to a Gratuity Fund administered by trustees and managed by the Life Insurance Corporation of

India. The Company accounts its liability for future gratuity benefits based on actuarial valuation, as at the Balance Sheet date, determined every year by an Actuary appointed by the Company using the Projected Unit Credit method. Actuarial gains/losses are recognised in the Profit and Loss Account. Obligation under the defined benefit plan is measured at the present value of estimated future cash flows. The estimate of future salary increase takes into account inflation, likely increments, promotions and other relevant factors.




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(c) Compensated Absences The liability for long term compensated absences carried forward on the Balance Sheet date is provided for based on actuarial valuation

done by an independent Actuary using the Projected Unit Credit method at the end of each accounting period. Short term compensated absences is recognized based on the eligible leave at credit on the Balance Sheet date and is estimated based on the terms of the employment contract.

(d) Other Employee Benefits Other employee benefits, including allowances, incentives etc. are recognised based on the terms of the employment contract.

12. Borrowing Cost Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Eligible borrowing costs

directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur.

13. Foreign Currency Transactions The Company translates foreign currency transactions into Indian Rupees at the rate of exchange prevailing at the transaction date. Monetary

assets and liabilities denominated in foreign currency are translated into Indian Rupees at the rate of exchange prevailing at the Balance Sheet date. Exchange differences arising on the settlement of monetary items or on reporting the Company’s monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, excluding long term foreign currency monetary items (see below), are recognised as income or as expenses in the period in which they arise.

Exchange differences, both realised and unrealised, arising on reporting of long term foreign currency monetary items (as defined in the Accounting Standard – 11 notified by the Government of India) relating to the acquisition of a depreciable capital asset are added to/deducted from the cost of the asset and in other cases unrealised exchange differences are accumulated in a “Foreign Currency Monetary Item Translation Difference Account” in the Company’s Balance Sheet and amortized over the balance period of such long term asset/liability but not beyond March 31, 2011, by recognition as income or expense in each of such periods.

14. Taxation Income Tax: Current tax is the amount of tax payable on the taxable income for the year and is provided with reference to the provisions of the

Income Tax Act, 1961.

Deferred Tax: Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset and relate to the taxes on income levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits.

At each Balance Sheet date the Company re-assesses unrecognised deferred tax assets. It recognises unrecognised deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be that sufficient future taxable income will be available against which such deferred tax assets can be realised.

MAT Credit: Minimum Alternate Tax (MAT) Credit is recognised as an asset only when and to the extent there is convincing evidence that the Company/its Wholly Owned Subsidiary (as applicable) will pay normal income tax during the specified period in accordance with the Guidance Note on “Accounting for Credit Available in respect of Minimum Alternate Tax under Income Tax Act, 1961”. In the year in which the MAT Credit becomes eligible to be recognised as an asset, the said asset is created by way of a credit to the Profit and Loss Account and shown as MAT Credit Entitlement. The Group reviews the same at each Balance Sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that the Group will pay normal income tax during the specified period.

15. Provisions, Contingent Liabilities and Contingent Assets Provisions are recognised only when the Company has present or legal obligations as a result of past events for which it is probable that an outflow

of economic benefit will be required to settle the transaction and when a reliable estimate of the amount of obligation can be made. Contingent liability is disclosed for (i) possible obligations which will be confirmed only by future events not wholly within the control of the Company or (ii) present obligations arising from past events where it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent assets are not recognised in the financial statements since this may result in the recognition of income that may never be realised.

Product warranty expenses are accounted as and when the warranty claims are preferred.




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SCHEDULE 17

NOTES TO THE CONSOLIDATED ACCOUNTS

1. Information relating to HOEC Bardahl India Limited (100% subsidiary of Hindustan Oil Exploration Company Limited) Information required pursuant to General Circular No. 2/2011 No: 5/12/2007-CL-III dated February 08, 2011 issued by Ministry of

Corporate Affairs.Amount in Rupees

Particulars HOEC Bardahl India LimitedYear ended

March 31, 2011Year ended

March 31, 2010Capital 5,000,200 5,000,200Reserves 75,782,288 62,422,966Total Assets 65,214,110 52,514,791Total Liabilities 38,213,220 29,982,838Investments (Refer Note 1 below) 53,781,598 44,891,213Turnover 170,151,377 168,883,635Profit Before Taxation 27,673,856 36,408,862Provision for Taxation (14,314,534) (12,014,990)Profit After Taxation 13,359,322 24,393,872Proposed Dividend 0 0

Note 1: Details of Investments of HOEC Bardahl India Limited:

Amount in Rupees

Current Unquoted (Non-Trade)UNITs of LIqUID/LIqUID PLUs sChemes of mUTUAL fUNDs



hDfC Liquid fund – Treasury Advantage Plan – Daily Dividend Reinvestment 40,906,017 0Prudential ICICI flexible Income Plan – Premium – Daily Dividend Reinvestment 12,875,581 0hDfC Liquid fund – Daily Dividend Plan 0 38,872,407Prudential ICICI Liquid fund – Daily Dividend Plan 0 6,018,806

Total 53,781,598 44,891,213

2. Secured Loans (Foreign Currency and Rupee Term Loans) (a) The term loans from State Bank of India, Axis Bank and HDFC Bank amounting to Rs. 311,495,432 as at March 31, 2011 (Rs. 479,900,983

as at March 31, 2010), are secured by way of charge on the Company’s Participating Interest in PY-3 and Palej Fields, first charge on the Company’s share of Crude Oil Receivables from PY-3 and Palej Fields and charge on the Debt Service Reserve Account. Also see Note 3 of Schedule 17.

(b) The term loans from Axis Bank amounting to Rs. 275,321,991 as at March 31, 2011 (Rs. 347,276,208 as at March 31, 2010) is secured by way of charge on all movable properties pertaining to PY-1 Gas Project, the Company’s Participating Interest in PY-1 Field and on the PY-1 Trust and Retention Accounts. Also see Note 3 of Schedule 17.

3. Bank Balances – Scheduled Banks (a) Current Accounts with Scheduled Banks include Lien Marked Accounts Rs. 941,993 as at March 31, 2011 (Rs. 1,261,453 as at

March 31, 2010). Also see Note 2 of Schedule 17. (b) Deposits with Scheduled Banks include: — Lien Marked Deposits Rs. 60,534,613 as at March 31, 2011 (Rs. 39,298,606 as at March 31, 2010). Also see Note 2 of Schedule 17. — Deposits amounting to Rs. 264,294,120 as at March 31, 2011 (Rs. 227,273,440 as at March 31, 2010) placed as “Site Restoration

Fund” under Section 33ABA of the Income Tax Act, 1961.

4. Bank Balances – Non-Scheduled Banks The balance with Non-Scheduled Bank represents the Company’s share in the balance in a foreign currency account with Barclays Bank, London

amounting to Rs. 6,586,423 as at March 31, 2011 (Rs. 24,381,396 as at March 31, 2010) and Banque ENI, Belgium (a ENI Group Entity) amounting to Rs. Nil as at March 31, 2011 (Rs. Nil as at March 31, 2010). The maximum amounts outstanding at any time during the year in respect of these accounts were Rs. 35,839,383 (Previous Year Rs. 103,143,622) and Rs. Nil (Previous Year Rs. 6,165,000,000) respectively.


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SCHEDULE 17 — NOTES TO THE CONSOLIDATED ACCOUNTS (Contd.)

5. Managerial Remuneration (a) Details of Managerial Remuneration Paid to Executive Director of the Company:

Amount in Rupees

Particulars 2010-2011 2009-2010Basic Pay 8,073,000 7,020,000Allowances 9,851,428 8,564,871Perquisites and Bonus 2,678,546 2,538,275Contribution to Provident and superannuation funds 2,179,710 1,895,400

Total (see Notes 1 and 2 below) 22,782,684 20,018,546 Notes: 1. In computing the above Managerial Remuneration, perquisites have been valued in terms of actual expenditure incurred by the Company

in providing the benefits or notional amount as per Income Tax Rules has been added, where the actual amount of expenditure cannot be ascertained.

2. Further, the remuneration does not include provisions made for gratuity and leave benefits, as they are determined on an actuarial basis for group as a whole. Also refer Note 6 of Schedule 17.

(b) Details of Managerial Remuneration Paid to Non-Executive Directors of the Company Amount in Rupees

Particulars 2010-2011 2009-2010sitting fees 195,000 170,000Provision towards Directors Commission 3,000,000 6,000,000

Note: In addition, 17,680 Employee Stock Options were granted during the year 2010-11, to the Independent Director(s) of the Company for

the year 2009-10 (5,550 Employee Stock Options granted during the year 2009-10 for the year 2008-09), pursuant to LTIP scheme 2005. Also see Note 6 of Schedule 17.

6. Long Term Incentive Plan, Scheme 2005 Under the HOEC Limited Employee Stock Option Scheme – 2005 (ESOS Scheme) approved by the Shareholders, and as amended from time

to time, the Board had on January 31, 2011 approved grant of 17,680 options (Previous Year 16,828 options approved on January 27, 2010) eligible Independent Directors at Nil exercise price as part of the Long Term Incentive Plan (LTIP). In terms of the ESOS Scheme, the options would vest at the third anniversary of the end of the financial year for which the grant corresponds to. For the year ended March 31, 2011 an aggregate amount of Rs. 20,000,000 (Previous Year Rs. 16,200,000) has been provided towards performance bonus and stock options as per the LTIP Scheme 2005. During the year, the Company has written back excess provision towards cash and ESOS (deferred bonus) made during the prior years amounting to Rs. 6,527,308 (Previous Year Rs. 8,813,666) based on the approval/ratification of the Board of Directors of the Company, at its meeting held on April 22, 2011 (Previous Year on April 30, 2010).

Method Used for Accounting for Share Based Payment Plan: Under the LTIP Scheme 2005, the eligible employees are granted options in the succeeding year after adoption of the Annual Audited Accounts

for the given year. The Company charges the entire amount provided towards performance bonus and stock options to the Profit and Loss Account for the year for which the grant corresponds to. Any upward variation in the market price/acquisition price of the ESOS stocks, as may be applicable, as on the date of Balance Sheet, is charged to the Profit and Loss Account for the period as per LTIP.

Particulars Number of Shares Arising Out of Options

2010-2011 2009-2010outstanding at the beginning of the Year 34,441 32,682Granted during the Year 17,680 16,828forfeited/lapsed during the Year 3,011 0exercised during the Year 0 15,069 outstanding at the end of the Year 49,110 34,441– Vested 0 0– Yet to Vest 49,110 34,441

Fair Value Methodology: The fair value of the options granted under LTIP Scheme 2005 approximates the intrinsic value of the options on the date of the grant.


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7. Employee Benefits

a. Gratuity

The Group’s obligation towards the Gratuity Fund is a Defined Benefit Plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with Life Insurance Corporation of India in the form of a qualifying insurance policy.

The following tables summarize the components of net benefit expense recognised in the Profit and Loss Account and the funded status and amounts recognised in the Balance Sheet.

Details of Actuarial Valuation as at March 31, 2011:

Amount in Rupees

Particulars 2010-2011 2009-2010

Reconciliation of opening and closing balances of the present value of defined benefit obligations

Projected Benefit obligation as at the Beginning of the Year 8,608,804 9,924,725

Reversal of excess Liability — (2,876,908)

service Cost 1,467,758 1,194,946

Interest Cost 704,504 577,411

Actuarial (Gains)/Losses (619,983) (169,499)

Benefits Paid (763,315) (41,871)

Projected Benefit Obligation at the End of the Year 9,397,768 8,608,804

Change in fair value of Plan Assets

fair Value of Plan Assets as at the Beginning of the Year 5,072,866 3,216,749

expected Returns on Plan Assets 475,188 354,849

employer’s Contribution 1,177,313 1,493,899

Benefits Paid (763,315) (41,871)

Actuarial Gains 14,369 49,240

Fair Value of Plan Assets as at the End of the Year 5,976,421 5,072,866

Reconciliation of present value of obligation and fair value of Plan Assets

Amount Recognised in the Balance Sheet Present Value of obligations as at the end of the Year 9,397,768 8,608,804

fair Value of Plan Assets as at the end of the Year 5,976,421 5,072,866

Liability Recognised in the Balance Sheet 3,421,347 3,535,938

Gratuity Cost for the Year

Current service Cost 1,467,758 1,194,946

Interest on obligation 704,504 577,411

expected Return on Plan Assets (475,188) (354,849)

Net Actuarial (Gain)/Loss (634,352) (218,739)

Net Cost Recognised in the Profit and Loss Account 1,062,722 1,198,769


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Amount in Rupees

Particulars 2010-2011 2009-2010

Defined Benefit obligation 9,397,768 8,608,804 Plan Assets 5,976,421 5,072,866 surplus/(Deficit) (3,421,347) (3,535,938)experience adjustments on Plan Liabilities (619,983) (169,499)experience adjustments on Plan Assets 14,369 49,240

Assumptions Discount Rate 8.00% -8.25% 8.00% -8.25%future salary Increase (%) 6.50%-9.00% 6.50%-9.00%Attrition Rate 1% to 5% 1% to 5%mortality Table LIC (1994-96)

published tableLIC (1994-96)

published tableexpected Rate of Return on Plan Assets 9.00% 9.00%

Amount in Rupees

2010-11 2009-10 2008-09 2007-08 2006-07Defined benefit obligations as at the end of the Year (9,397,768) (8,608,804) (9,924,725) (7,928,531) (5,244,414)Plan Assets Value at the end of year 5,976,421 5,072,866 3,216,749 1,689,742 1,550,406 surplus/(Deficit) (3,421,347) (3,535,938) (6,707,976) (6,238,789) (3,694,008)experience adjustments on Plan Liabilities (619,983) (169,499) 264,343 1,259,092 (124,326)experience adjustments on Plan Assets 14,369 49,240 50,721 21,521 13,586

Note: The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant

factors, such as supply and demand in the employment market. b. Compensated Absences The key assumptions used in computation of provision for long term compensated absences are as given below: Discount Rate (% p.a.) 8.25% Future Salary Increase (% p.a.) 9.00% Mortality Rate LIC (1994-96) published table Attrition (% p.a.) 1% to 5%

8. Segmental Reporting Segment reporting in terms of Accounting Standard 17 is as under:

Amount in RupeesParticulars 2010-2011 2009-2010

1 Segment Revenue — hydro Carbon 3,298,166,749 1,547,011,704 — oil Additives 167,361,566 166,768,096 — Inter-Company elimination (7,056,000) (7,056,000)— Unallocated 77,371,852 44,004,187 Gross Sales/Income from Operations 3,535,844,167 1,750,727,987

2 Segment Results — hydro Carbon 1,228,394,989 689,300,897 — oil Additives 25,078,443 34,522,448 — Unallocated (46,702,090) (36,652,337)Total Profit before Tax 1,206,771,342 687,171,008


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Amount in RupeesParticulars 2010-2011 2009-2010

3 Segment Assets — hydro Carbon 17,037,077,751 17,847,980,051 — oil Additives 50,223,358 44,995,243 — Unallocated 2,322,096,832 1,261,941,150 Total Assets 19,409,397,941 19,154,916,444

4 Segment Liabilities — hydro Carbon (1,335,647,485) (1,477,925,386)— oil Additives (38,213,220) (29,982,838)— Unallocated (6,217,271,721) (6,568,016,215)Total Liabilities (7,591,132,426) (8,075,924,439)

5 Addition in Tangible & Intangible Fixed Assets — hydro Carbon 430,037,854 5,891,818,396 — oil Additives 442,959 730,249 — Unallocated 0 0 Total Addition in Tangible & Intangible Fixed Assets 430,480,813 5,892,548,645

6 Depreciation and Amortisation — hydro Carbon 1,222,879,767 471,949,918 — oil Additives 408,893 498,322 — Unallocated 0 0 Total Depreciation and Amortisation 1,223,288,660 472,448,240

7 Non-Cash Expenses other than Depreciation and Amortisation — hydro Carbon 0 0— oil Additives 160,075 22,499 — Unallocated 0 0 Non-Cash Expenses other than Depreciation and Amortisation 160,075 22,499

Note: The Group’s operations are carried out only in India and the Group does not have any geographical segments other than India.

9. Unincorporated Joint Venture Operations The Company has entered into Production Sharing Contracts (PSC) for Unincorporated Joint Ventures (UJV) in respect of certain properties

with the Government of India and some bodies corporate. Details of these UJVs and participating interest of venture partners are as follows:

Sl. No.


Partners Share (%)As at

March 31, 2011As at

March 31, 2010Licensed Production Sharing Contracts:

1 PY–1 hindustan oil exploration Company Limited 100.00 100.002 CY-os/90-1 (PY–3) hardy exploration & Production (India) Inc. 18.00 18.00

oil and Natural Gas Corporation Limited 40.00 40.00hindustan oil exploration Company Limited 21.00 21.00Tata Petrodyne Limited 21.00 21.00

3 Asjol hindustan oil exploration Company Limited 50.00 50.00Gujarat state Petroleum Corporation Limited 50.00 50.00

4 North Balol hindustan oil exploration Company Limited 25.00 25.00Gujarat state Petroleum Corporation Limited 45.00 45.00heramec Limited 30.00 30.00

5 CB-oN/7 (Palej) hindustan oil exploration Company Limited 35.00 35.00Gujarat state Petroleum Corporation Limited 35.00 35.00oil and Natural Gas Corporation Limited 30.00 30.00


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Sl. No.


Partners Share (%)As at

March 31, 2011As at

March 31, 20106 CB-os/1 Exploration Area

oil and Natural Gas Corporation Limited 32.89 32.89hindustan oil exploration Company Limited 57.11 57.11Tata Petrodyne Limited 10.00 10.00

Development Areaoil and Natural Gas Corporation Limited 55.26 55.26hindustan oil exploration Company Limited 38.07 38.07 Tata Petrodyne Limited 6.67 6.67

7 GN-oN-90/3 (Pranhita Godavari)

hindustan oil exploration Company Limited 75.00 75.00mafatlal Industries Limited* 25.00 25.00

8 AAP-oN-94/1 hindustan oil exploration Company Limited 40.323 40.323Indian oil Corporation Limited 43.548 43.548oil India Limited 16.129 16.129

9 RJ-oNN-2005/1 hindustan oil exploration Company Limited 25.00 25.00

Bharat Petro Resources Limited 25.00 25.00Jindal Petroleum Limited** 25.00 25.00ImC Limited 25.00 25.00

10 RJ-oNN-2005/2 oil India Limited 60.00 60.00

hindustan oil exploration Company Limited 20.00 20.00hPCL & mittal energy Limited 20.00 20.00

Note: All the Unincorporated Joint Ventures are for the blocks awarded within the territorial limits of India.

* Mafatlal Industries Ltd. has defaulted in Cash Call Payment for the Unincorporated Joint Venture and there is an arbitration proceeding in this matter, which is pending as at March 31, 2011.

** Jindal Petroleum Ltd. has not submitted Bank Guarantee and Performance Guarantee as required under the Production Sharing Contract (PSC) and thus has been declared as “Defaulting Party” by Management Committee as per the provisions of the PSC.

10. Details of Oil and Gas Reserves As at March 31, 2011, the internal estimates of the Management of Proved and Probable Reserves on working interest basis for the Company is

as follows:

Opening Balance Addition Deduction Production Closing Balance

oil mmBoe 9.1 0.9 0 0.3 9.7Gas mmsCm 6,927.0 0 0 366.7 6,560.3

11. Related Party Disclosures (i) The related parties of the Company as at March 31, 2011 are as follows: (A) Promoter Group: 1. ENI UK Holding plc (Wholly Owned Subsidiary of ENI S.p.A, Italy) 2. Burren Shakti Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding plc) 3. Burren Energy India Limited (Wholly Owned Indirect Subsidiary of ENI UK Holding plc)

(B) Other Group Entities: 1. ENI Coordination Center S.A., Belgium 2. ENI India Limited, United Kingdom 3. Banque ENI, Belgium


89



(C) Unincorporated Joint Ventures: As per details given in Note 9 of Schedule 17.

(D) Key Management Personnel:

1. Mr. Luigi Ciarrocchi – Managing Director

2. Mr. Manish Maheshwari – Joint Managing Director

(ii) The nature and volume of transactions of the Group during the year with the above parties were as follows:

Amounts in Rupees

Particulars Promoter Group

Other Group Entities


Partners

Key Management

Personnel

EXPENDITURE

field operating expenditure 0(0)

39,362,625 (16,258,135)

0(0)

0(0)

— Remuneration to Joint managing Director (see Note 5(a) of schedule 17)

0(0)

0(0)

0(0)

22,782,684 (20,018,546)

Professional fee 0(0)

23,884,733(0)

0(0)

0(0)

— Recovery of expenses 0(0)

0(0)

75,921,519 (37,125,996)

0(0)

— Interest Paid 0(0)

77,136,005(46,695,729)

0(0)

0(0)

— Dividends Paid 30,784,567(0)

0(0)

0(0)

0(0)

— Bank Charges 0(0)

26,492(48,297)

0(0)

0(0)

LOAN

— Unsecured Loan Taken* 0(0)

0(5,697,500,000)

0(0)

0(0)

— Unsecured Loan Repaid* 0(0)

390,025,000(0)

0(0)

0(0)

CAPITAL EXPENDITURE

— exploration expenditure 0(0)

24,992,454(665,798)

0(0)

0(0)

— Development expenditure 0(0)

121,684,535(160,438,827)

0(0)

0(0)

AS AT YEAR END

Loan outstanding as at Year end* 0(0)

5,307,475,000(5,697,500,000)

0(0)

0(0)

Amounts Payable as at Year end 0(0)

208,534,245(169,875,356)

0(0)

0(0)

* Amount relates to ENI Coordination Center S.A., Belgium.

Note: Figures in brackets relate to the Previous Year


90




12. Earnings Per Share (EPS)

The basic and diluted Earnings per Equity Share is calculated as stated below:

Particulars 2010-2011 2009-2010

Net Profit after Tax Rs. 815,356,808 Rs. 440,318,466

Weighted Average Number of equity shares 130,493,289 130,493,289

Basic/Diluted earnings per share (ePs) Rs. 6.25 Rs. 3.37

Nominal Value per share Rs. 10 Rs. 10

Note: Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average

number of equity shares outstanding during the year.

13. Taxation

(i) MAT Credit Provision for Income Tax for the current year as well as the previous year has been computed based on Minimum Alternate Tax in accordance

with Section 115JB of the Income Tax Act, 1961. Taking into consideration the future profitability and the taxable position in the subsequent years, the Company has recognised “MAT Credit Entitlement” to the extent of Rs. 232,000,000 (Previous Year Rs. 108,000,000) during the current year in accordance with the Guidance Note on Accounting for Credit Available in respect of Minimum Alternate Tax under Income Tax Act, 1961” issued by the Institute of Chartered Accountants of India.

(ii) Deferred Tax (Liabilities)/Asset (Net)

The net Deferred Tax Liability of Rs. 322,533,226 as at March 31, 2011 (Deferred Tax Asset of Rs. 54,510,902 as at March 31, 2010) comprises the following components:

Amount in Rupees

Particulars 2010-2011 2009-2010

Deferred Tax Asset

exploration expenses 301,077,000 301,210,000

Doubtful Debts/Advances 5,739,543 5,729,780

employee Related Costs 3,850,276 2,950,535

Unabsorbed Business Losses and Depreciation 1,475,979,919 1,050,577,919

others 19,932 78,177

site Restoration 5,014,000 0

Sub Total (A) 1,791,680,670 1,360,546,411

Deferred Tax Liability

Depreciation and Depletion 2,114,213,896 1,291,665,509

foreign Currency monetary Item Translation Difference Account 0 830,000

site Restoration 0 13,540,000

Sub Total (B) 2,114,213,896 1,306,035,509

Net Deferred Tax Asset (A – B) (322,533,226) 54,510,902


91



14. Commitments and ContingenciesAmount in Rupees

Particulars As at March 31, 2011


(i) Counter Guarantees on account of Bank Guarantees 165,287,440 71,824,538

(ii) estimated amount of Contracts remaining to be executed on Capital Account and not Provided for: 77,610,531 119,934,054

(iii) Claims against the Company Not Acknowledged as Debt

— Dispute with Contractors under Arbitration 0 3,245,248

— Income Tax Demands under Appeal 602,982,957 894,530,068

— fringe Benefit Tax Demand where the matter is in appeal 523,345 523,345

— Central excise demand where the matter is in appeal 300,844 0

— Customs Demand where the matter is in appeal 540,464 540,464

(iv) Dispute with Government of India under Arbitration 349,341,475 327,033,332

(v) service Tax Liability 2,139,321 2,139,321

(vi) hire Charges 51,694,208 51,694,208

15. Provision for Site Restoration In accordance with Accounting Standard 29, the movement in Provision for Site Restoration is as follows.

Amount in Rupees

Provision for Site Restoration 2010-2011 2009-2010

opening Balance 801,505,000 286,112,500

Add: Provision for the Year 0 546,210,000

effects of Changes in foreign exchange Rates (7,072,500) (30,817,500)

Closing Balance 794,432,500 801,505,000

As per the terms of the Production Sharing Contracts this liability will arise at the time of abandonment of the respective fields.

16. Recovery of Expenses Recovery of expenses represents expenditure incurred by the Company for the UJVs where the Company is the Operator. Such costs are recovered

from the respective UJVs as per the terms of the Production Sharing Contract. Recovery of expenses also includes an amount of Rs. 12,728,726 (Previous Year Rs. 57,969,229) recovered as parent company overhead pursuant to the respective Production Sharing Contracts.

17. Accounting Standard 11 – The Effects of Changes in Foreign Exchange Rates The details of the adjustment pursuant to the above are as under:

Amount in Rupees

Particulars 2010-2011 2009-2010

exchange Differences capitalised to fixed Assets (Development expenditure) during the Year 60,418,155 261,532,172

Closing Balance of foreign Currency monetary Item Translation Difference Account as at the end of the year to be amortised in subsequent periods 0 2,501,863

Amount of Net Amortisation of foreign Currency monetary Item Translation Difference Account charged to the Profit and Loss Account for the Year (1,175,363) 7,655,662

18. Impairment As of March 31, 2011, the Group has reviewed the carrying amount of its assets for indications of impairment and based on such review,

the Group has concluded that none of the assets of the Group has suffered impairment loss as at March 31, 2011.


92




For S. R. Batliboi & Associates R. Vasudevan Manish Maheshwari(Firm Registration No. 101049W) Chairman Joint Managing DirectorChartered Accountants




19. Particulars of Unhedged Foreign Currency Exposure The particulars of unhedged Foreign Currency Exposure of the Group, are as under:

Amount in Rupees

Particulars Exposure as at March 31, 2011

Exposure as at March 31, 2010

secured Loans 370,817,423 491,177,191

Unsecured Loans 5,307,475,000 5,697,500,000

sundry Debtors 248,180,869 145,421,449

Loans and Advances 0 100,921,368

sundry Creditors 279,760,668 24,750,149

Bank Account and Deposit 36,888,166 319,240,724

20. Previous Year Figures Previous Year’s figures have been regrouped wherever necessary to conform to the current year presentation.

The figures of Previous Year were audited by a firm of Chartered Accountants other than S. R. Batliboi & Associates.


93

2D Seismic – Two Dimensional Seismic3D Seismic – Three Dimensional Seismic2P/P+P Reserves – Proven and Probable Reserves Proven Reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated

with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. If probabilistic methods are used, there should be at least 90% probability that the quantities actually recovered will equal or exceed the estimate.

Probable Reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated proven plus probable reserves.

bbl – barrelboe – barrels of oil equivalentbopd – barrels of oil per dayboepd – barrels of oil equivalent per dayCDR _ Commercial Discovery ReportCRZ – Coastal Regulation ZoneCSR _ Corporate Social ResponsibilityDP – Depository ParticipantDevelopment well – A well drilled within the proved area of an oil and /or natural gas reservoir to the depth of a stratigraphic horizon known

to be productive.DGH – Directorate General of HydrocarbonsECB – External Commercial BorrowingECC – Eni Coordination Center S.A.ERP – Emergency Response PlanExploratory well – A well drilled to find oil and /or gas in an unproved area, to find a new reservoir in an existing field or to extend a known

reservoir.E&P – Exploration and ProductionG&G – Geological & GeophysicalGDP – Gross Domestic ProductGHG – Green House GasGSPCL – Gujarat State Petroleum Corporation Ltd.HAZID – Hazard Identification (Risk Analysis)HAZOP – Hazard and Operability AnalysisHEPI – Hardy Exploration and Production (India) Inc.HOEC – Hindustan Oil Exploration Company LimitedHSEC – Health, Safety, Environment & Corporate Social ResponsibilityIPP – Independent Power Plant; PPGC, an IPP, is end user of PY-1 Gas.ISDA _ International Swap and Derivatives Association, Inc.JOA – Joint Operating AgreementJSA – Job Safety AwarenessJV – Joint VentureKPI _ Key Performance IndicatorLTI _ Loss Time IncidentLTIP – Long Term Incentive PlanMAT _ Minimum Alternate Taxmmboe – Million barrels of oil equivalentmmbtu – Million british thermal unitmmscfd – Million standard cubic feet per daymmscm – Million standard cubic metersML – Mining LeaseMSMED – Micro Small & Medium Enterprises Development Act, 2006NEDs – Non Executive DirectorsNELP – New Exploration Licensing PolicyOGP – International Association of Oil & Gas ProducersONGC – Oil & Natural Gas Corporation LimitedPI – Participating InterestPMC – Project Management ConsultantPSA – Petroleum Service Agreement between Eni and HOECPSC – Production Sharing Contract Revenue – Sales+Increase/(Decrease) in stock of crude oil+Other Incomescmd – standard cubic meters per dayscm – standard cubic metersSEBI – Securities and Exchange Board of IndiaSEM – Successful Efforts MethodSIMOPs – Simultaneous OperationsUSD $ – United States DollarWorking interest basis – Field Production x Participating InterestEntitlement basis – Working interest basis less Government of India Profit Petroleum takeTurnover – Sales + Increase/(Decrease) in Stock of Crude Oil

Glossary

NoTEs

HINDUSTAN OIL EXPLORATION COMPANY LIMITEDRegd. Office: ‘HOEC House’, Tandalja Road, Vadodara - 390 020

I hereby record my presence at the 27th ANNUAL GENERAL MEETING of the Company held on Wednesday,

September 28, 2011 at 10:30 A.M. at ‘Tropicana Hall’, The Gateway Hotel Vadodara, Akota Gardens, Akota,

Vadodara - 390 020.

Folio No. DP ID No. Client ID No.

Name of the Shareholder/Proxy :

No. of Shares :

Date: September 28, 2011 Signature of the Shareholder/Proxy

HINDUSTAN OIL EXPLORATION COMPANY LIMITEDRegd. Office: ‘HOEC House’, Tandalja Road, Vadodara - 390 020

Folio No. DP ID No. Client ID No.

No. of Shares :

I/We of in the district

of being a Member(s) of Hindustan Oil Exploration Company Limited hereby

appoint of or failing him/her

of as my/our proxy to

attend and vote for me/us and on my/our behalf at the 27th Annual General Meeting of the Company to be held on Wednesday,

September 28, 2011 at 10:30 A.M. and at any adjournment thereof.

Signed this day of 2011.

Note: The Proxy Form must be deposited at the Registered Office of the Company not less than 24 hours before the commencement of the Meeting.

TEA

R H

ERE

Affix 15 Paise Revenue Stamp

(.....Signature....)

PROXY FORM

ATTENDANCE SLIP

[To be presented at the entrance]

27th AN

NU

AL REPO

RT 2010-2011

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lsHindustan Oil Exploration Company Limited Website: www.hoec.com


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Documents

27th Annual Report 2010-2011 · 27 th ANNUAL REPORT 2010-2011 vakils Hindustan Oil Exploration Company Limited Website: 27th Annual Report 2010-2011 Hindustan Oil Exploration Company